Saturday, February 22, 2014

S&P 500 Companies Accelerate Buybacks

S&P Dow Jones Indices has reported preliminary fourth quarter 2013 buyback activity for S&P 500 companies. The report notes companies in the index increased the dollar amount of buybacks by more than 30% on a year over year basis: $129 billion in Q4 2013 versus $99 billion in Q4 2012. In spite of the increase in cost of buybacks in 2013 due to the market's 30%+ price advance in 2013, companies are expected to continue returning cash to shareholders via higher dividends and buybacks this year. This increase in returning cash to shareholders is possible due to companies maintaining high levels of cash on their balance sheet as well as the expected continued growth in earnings and cash flow. At 12/31/2013 companies maintained 9.97% of their market capitalization in cash and cash equivalents. One significant buyback participant has been Apple (AAPL). The report notes:
"Buybacks have been the rage, but companies are going to have to spend 30% more to buy back the same number of shares in 2014 as they did in 2013 (since prices have gone up). The share count is more relevant to EPS, and on that count, we are seeing a greater number of companies reducing their share counts, which is providing a tailwind to earnings. Apple Inc., which holds the quarterly record of $16 billion in buybacks posted in the second quarter of 2013, already purchased $14 billion in the first two weeks of January."
From The Blog of HORAN Capital Advisors

Disclosure: Family long AAPL

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