Johnson & Johnson and ConocoPhillips today announced plans to repurchase a combined $25 billion of stock, adding to this year's record pace of U.S. share buybacks.
J&J, the world's largest maker of health-care products, will use a combination of cash and debt to fund a $10 billion repurchase program, the company's largest. ConocoPhillips, the third-biggest U.S. oil producer, plans to buy back as much as $15 billion of its shares through 2008.
Today's buyback announcements follow record repurchase programs initiated this year by Home Depot Inc., the largest home-improvement retailer, and International Business Machines Corp., the biggest computer-services provider. U.S. companies announced $415 billion of share buybacks in 2007, 24 percent ahead of last year's record pace, according to data as of June 29 compiled by Birinyi Associates Inc.
``Corporations are flush with cash to the extent they feel they can grow their businesses and still have money left over to return to shareholders,'' said James Awad, who oversees about $1.3 billion as chairman of Awad Asset Management in New York. ``One of the legs of this bull market has been that the supply of common stocks has been shrinking.''
Earlier today, I commented on the large amount of cash that companies have on hand. This is where all of the money for these buybacks is coming from. These buybacks have provided a certain amount of support for stocks, as well as providing fuel for the large amount of M&A that has happened for this expansion. So long as companies have large amounts of cash on hand, expect to hear more announcements like this.
4 comments:
Many of the buybacks are using at least some debt. If I remember correctly, some are all debt.
Also, there is no guarantee that they will actually buy back any shares at all. They can change their minds if they feel like it.
Hey, here's a crazy idea: take all that cash and invest it in improving your products/services. Or develop new ones.
A few years down the road, we'll look back at the buy-back era as a big mistake in American enterprise.
Instead of using this money they have available to expand their market positions, they opted instead to transfer wealth back to themselves... and ultimately this will damage their businesses.
Bonddad,
I read you on DailyKos and really like your style.
My question on the buy-backs, do you think that these companies are buying back their stock because they know something is going to happen to the economy down the track? IE, do they see a storm ahead that we people do not?
~Texas Tiger
So what exactly IS a buyback? Does a company offer to buy back stocks at a higher-than-standard price? Is the stockholder required to sell? What are the possible consequences for the company?
Why assume everyone understands these terms?
(And while I'm at it, can you please define "overweight" and "underweight" as applied to stocks?)
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