In a sign that corporate America's prospects are taking a turn for the better, on a sequential basis stock buybacks increased 44% in the third quarter of 2009 for companies in the S&P 500 Index. On an absolute dollar basis buybacks totaled $34.8 billion versus $24.2 billion in the second quarter.
This increased buyback activity coincides with an improvement in "as reported" earnings. The low point in earnings came in the fourth quarter last year when earnings, or lack there of, were reported at -$202.11 billion. In the third quarter of 2009 the final tally for as reported earnings are projected to total $131.96 billion, the third straight quarterly improvement.
This increased buyback activity coincides with an improvement in "as reported" earnings. The low point in earnings came in the fourth quarter last year when earnings, or lack there of, were reported at -$202.11 billion. In the third quarter of 2009 the final tally for as reported earnings are projected to total $131.96 billion, the third straight quarterly improvement.
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The negative aspect of the increased buyback activity and no corresponding increase in dividends may be reflect of the uncertain view companies have about prospects in 2010. If companies had a favorable view of the business climate in 2010, dividends may have been increased as well. Increasing dividends is a longer term commitment on a companies cash while buybacks can be suspended easily at any time. Given the uncertain impact that all the new policies coming out of Washington may have on businesses, it is understandable that businesses are cautious about the economy next year.
Source:
S&P 500 Buybacks Rebound 44%; Remain 80% off Their High (pdf)
Standard & Poor's
By: David Guarino and Howard Silverblatt
December 14, 2009
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