Share buybacks are an oft-used and somewhat controversial practice on Wall Street. While most investors perceive them as a net positive because buybacks boost earnings per share and theoretically increase the value of each outstanding share, they aren’t all roses and daisies for investors.
Some common criticism of stock buybacks are their arguably deceptive nature and the fact that executives can use buybacks as tools to boost their own compensation.
That said, share buybacks, if used properly, can provide meaningful benefits to long-term investors who see their ownership percentage in the company steadily tick higher year after year.
Here are five companies who, for better or worse, just meaningfully increased their stock buyback programs.
Stocks Boosting Share Buybacks: International Business Machines (IBM)
Buyback increase: $5 billion
Date of increase announcement: October 28, 2014
% Increase in buyback program: 257%
International Business Machines (IBM) recently approved a $5 billion increase in its share repurchase program, which previously had a measly $1.4 billion of approved buybacks remaining.
While there’s no debate over IBM’s devotion to the concept of share buybacks, not everyone is pleased with how Big Blue is spending its money. In the first nine months of 2014, the company repurchased $13.5 billion worth of its own shares, more than two times the company’s actual net income in the same period.
Some older-school market observers might argue that IBM and its shareholders would be better served if the company spent more money investing in growing the business, where IBM finds itself behind the curve on a major new trend: cloud computing.
Stocks Boosting Share Buybacks: Micron Technology, Inc. (MU)
Buyback increase: $1 billion
Date of increase announcement: October 27, 2014
% Increase in buyback program: N/A
Great minds think alike? The day before IBM approved its share buyback program, Micron Technology (MU) announced its own billion-dollar repurchase plan.
Micron hadn’t spent a dime of its cash buying back MU stock in about three years, not since it bought back about 19.7 million shares in 2011. That turned out to be a mighty good use of funds, as the MU stock prices is up about five- or six-fold from its levels in late 2011.
As the chipmaker’s improving results give the company more financial leeway, Micron is taking strategic steps to improve its balance sheet and boost its stock price, buying back both debt and equity in recent months.
Stocks Boosting Share Buybacks: Dow Chemical Co (DOW)
Buyback increase: $5 billion
Date of increase announcement: November 12, 2014
% Increase in buyback program: 111%
The most recent company to prominently increase its share buyback program, Dow Chemical (DOW) more than doubled its previously approved repurchasing plan, boosting it from $4.5 billion to $9.5 billion. Flexing its fiscal prowess, Dow Chemical also bumped DOW stock’s dividend by 14%, increasing it from 37 cents per share to 42 cents per share.
The dividend increase alone is impressive, as DOW stock’s dividend yield increased from 3% to 3.4% overnight. Dow Chemical investors are enjoying a nice year in 2014, with shares of DOW stock enjoying a solid 14% return for the year-to-date.
Stocks Boosting Share Buybacks: Skyworks Solutions Inc (SWKS)
Buyback increase: $236.2 million
Date of increase announcement: November 11, 2014
% Increase in buyback program: 269%
Woburn, Massachusetts-based chipmaker Skyworks Solutions (SWKS) just amended its previously approved share repurchase program, which only allowed the company to make $63.9 million in buybacks before Tuesday’s revised plan. Now the total is nearly $250 million.
It’s not like SWKS stock needed the boost: SWKS is up a whopping 115% year-to-date as rumors swirl that it’s making chips for Apple (AAPL), a company you’re probably familiar with, considering Apple is literally the biggest company (by market cap) on the face of the planet.
Of course, even if the speculation is true and SWKS is an AAPL supplier, that doesn’t mean SWKS is made in the shade. Just ask GT Advanced Technologies (GTAT), who went belly-up after an allegedly one-sided deal to make sapphire glass for Apple products drove GTAT to bankruptcy.
Stocks Boosting Share Buybacks: CDW Corp (CDW)
Buyback increase: $500 million
Date of increase announcement: November 6, 2014
% Increase in buyback program: N/A
Like SWKS investors, anyone who’s owned CDW Corp (CDW) stock in 2014 has been spoiled, and didn’t need the recent share buybacks to be happy about the stock. CDW stock is up 40% thus far in 2014.
The IT solutions provider must be feeling pretty comfy with its financial position, since the same day CDW announced the $500 million stock repurchase program it boosted its dividend … by 59%! Oh, CDW also decided to take a minority stake in Kelway, an IT solutions provider out of the UK.
One interesting thing to remember when looking at CDW’s financials is its infinitesimal net profit margin, which clocked in at 1.23% in 2013. While on the face of it that seems like a bad quality for a stock to have, it’s actually an interesting opportunity for investors, who can reap disproportionate rewards from incremental improvements to CDW’s net profit margin.
For example, CDW’s annual revenue increased by just 6.3% from 2012 to 2013. Its net profit margin increased by a seemingly irrelevant amount — 6 basis points — increasing from 1.17% to 1.23%. But that tiny difference helped CDW post an 11.6% increase on its bottom line.
As of this writing John Divine was long AAPL stock. You can follow him on Twitter at @divinebizkid.
