Saturday, December 28, 2013

Very Few 'No Dividend/No BuyBack' Companies In The S&P 500 Index

Early this past week we wrote about the strong stock buyback activity by S&P 500 companies. For investors selecting their favored stock purchases from the list of companies that comprise the S&P 500 Index, they have not have difficulty finding a company that pays a dividend or has bought back their stock this past year.

In a recent report by Factset it is noted,
  • Just 16 companies in the S&P 500 (3.2%) did not pay a dividend or engage in a share buyback over the trailing twelve month period.
  • As recently as Q1 2010, more than three times as many companies (49, or 9.8%) did not make either form of distribution. 
  • Concurrently, the number of companies engaging in both forms of shareholder distribution reached the highest level since at least 2005 (369, or 73.8%).
    From The Blog of HORAN Capital Advisors
    Source: Factset

    The Factset report goes on to note that the no buyback/no dividend companis tend to be the smaller ones within the index; however, there are a few notable exceptions, Amazon (AMZN) and Google (GOOG).  In the case of Google, the report notes, "Google...had free cash flow just shy of $12 billion over the trailing four quarters. The company also has cash and short-term investments of $57 billion, which grew 23.6% year-over-year.

    Lastly, with this heightened level of buyback activity, investors need to be aware of the impact buybacks have on reported earnings per share for companies. In the case where the buyback reduces the share count, this can distort the actual earnings growth being achieved by the respective company. Additionally, as we noted in a post in early 2012, companies have a practice of buying back shares at elevated price levels as can be seen in the below chart.

    Disclosure: Long GOOG

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