S&P 500 companies bought back nearly $110 billion of their stock in the third quarter, continuing the strong pace of buybacks that "has had a material impact on earnings per share" for more than 20% of the stocks in the index, according to a Standard & Poor's news release. Buybacks in the most recent quarter were up 35% from the third quarter of 2005 and up 140% from the third quarter of 2004. Over the past eight quarters, S&P 500 companies "have spent over $742 billion on buybacks, with over half of the issues posting fewer shares now then they did two years ago," the release said.
Buybacks and dividends have switched positions, with buybacks now the favored form of return of shareholder value over that of traditional dividend payments, Howard Silverblatt, S&P senior index analyst, confirmed in an interview.
For the quarter ended Sept. 30, the S&P 500 companies paid dividends totaling $54.7 billion, according to S&P preliminary data.
"The two-year-old buyback bonanza continues, with the buildup of treasury shares adding to the corporate war chest for additional (merger and acquisition) activity," Mr. Silverblatt said in the statement. "S&P is concerned that investors may not fully appreciate the full impact that share count reduction has on (earnings per share), especially considering the recent double-digit market gain for the S&P 500 since its Aug. 11 low. Left unabated, continued share count reduction can impact the supply of open market shares, and therefore the share price itself."
For the rest of this year and into 2007, S&P "expects the strong buyback activity within the S&P 500 companies to continue," Mr. Silverblatt said in the statement. "The activity is fueled in part by the positive impact it is having on earnings per share, and the desire of S&P 500 companies to satisfy the demands of investors to utilize built-up cash reserves. Looking further into 2007, we believe many of these shares will find their way back into the public domain via increased M&A activity."