2007 Share Buybacks A Record, Hard To Expect Repeat In 2008

One topic we cover at a673b.bigscoots-temp.com with regularity is share buybacks from major companies.  While we are starting to see a slower pace in fresh buyback announcements compared to 2006 and 2007, the rate that companies are buying back shares continues to be very high.

Standard & Poor’s, the world’s has released a preliminary S&P 500 stock buyback report on repurchase activity for 2007.  This shows that S&P 500 Index companies repurchased a record $589 billion in shares during 2007.  What is odd is that this is much larger by more than double the 2007 cash dividends S&P counted of $246 billion.  It is also marginally higher than the "2007 As Reported GAAP earnings" which were listed as some $587 billion. 

This was not only a record according to S&P, but a sharp rise from the years before. The 2007 rate of $589 billion in share repurchases equates to 36.4% increase over the $432 billion that S&P said was spent in 2006.  It represents a 350% increase from $131 billion that S&P recorded back to 2003.

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We will be the first to note that there are far fewer new buybacksbeing announced as the economy is slowing in 2008 compared to what wesaw in 2007.  But there were many weeks where key buybacks have beenannounced or updated:

• Qualcomm (NASDAQ: QCOM)  recently put forth a $2 Billion buyback plan in place to replace a prior and completed $3 Billion plan.
• IBM (NYSE: IBM) is almost jokingly taking itself private as it has bought back so much stock.
• Even Amazon.com (NASDAQ: AMZN) got into the buyback game for $1 Billion in February.
• Verizon’s (NYSE: VZ) recent $3.6 Billion pact was a larger one.
• Altria Group, Inc. (NYSE: MO) is soon to be a serial shareretiree as it will place much emphasis on shrinking its float as partof its restructuring.
• Dell, Inc. (NASDAQ: DELL) and Cisco Systems (NASDAQ: CSCO) each have about $10 Billion announced earlier this year that can be used to buy shares.

As a reminder, many of these shares get retired permanently and manyshares get thrown back into treasury stock that can be used foremployees, shareholders, or other acquisitions down the road.  As theeconomy slows in 2008, the pace of buybacks this year should likely endup being far less than that of 2007.

Jon C. Ogg
April 7, 2008

Jon Ogg can be reached at [email protected]; he produces the Special Situation Investing Newsletter and he does not own securities in the companies he covers.