It’s no surprise that there are many blue-chip stocks with share buyback programs. Alongside the paying out of dividends, share buybacks are a great vehicle for mature businesses to maximize value for investors.
Mostly, because share buybacks, also known as share repurchases, decreases the number of outstanding shares. This helps to give an upward lift to earnings per share, in turn helping to increase returns for investors.
The usage of share repurchases varies from company-to-company. Some blue chips prefer to focus their return-of-capital efforts on just dividends, reinvesting the remainder of free cash flow back into efforts to grow their respective businesses, such as organic growth and/or strategic acquisitions.
Other companies, however, devote a big allocation of free cash to share repurchase programs. That’s the situation here, with the following seven blue-chip stocks with share buyback programs.
Each one is in the process of repurchasing at least $1 billion worth of its own stock.
Apple (AAPL)
Apple (NASDAQ:AAPL), trillion dollar club member and “Magnificent Seven” component, may be best known as a growth stock, but in one regard, the tech powerhouse acts more like a mature, blue-chip sort of company: return of capital efforts.
When it comes to dividends, AAPL stock is far from a high-yielder. Shares currently have a forward dividend yield of 0.54%. However, in stock buybacks, the company has been quite active over the past decade. According to Yahoo! Finance, the iPhone maker has bought back more than $573 billion worth of stock since 2012.
Two years in a row, Apple’s board has given authorization to the company to repurchase $90 billion of its own shares. Alongside the growth of its underlying business, Apple’s aggressive repurchase program has undoubtedly played a big role in sending the stock up by more than ninefold over the past eleven years.
Salesforce (CRM)
Salesforce (NYSE:CRM) may at first glance not seem like a blue-chip stock. To some extent, this makes sense. Although established and profitable, the customer relationship management software provider is a relatively young company, not a century-old business as are most blue-chips.
That said, CRM stock, much like AAPL stock, is a Dow Jones Industrial Average component. While a “new school” company, inclusion in this “old school” index gives credence to the argument that Salesforce is among the tech blue chips.
Yet while CRM’s blue-chip status is up for debate, there’s no denying that if it is, it’s one of the blue-chip stocks with share buyback programs.
In fact, Salesforce has become quite aggressive when it comes to repurchase efforts. In 2022, under pressure from activist investors, CRM’s board authorized a $10 billion buyback, and this year the company announced plans to repurchase $20 billion worth of shares.
Chevron (CVX)
There’s no question about Chevron’s (NYSE:CVX) blue-chip status. The integrated oil and gas company, whose origins stem from the Standard Oil trust broken up more than 100 years ago, is as blue-chip as you can get.
The latest headlines with CVX stock have had to do with the big oil firm’s big acquisition announcement: its plans to acquire oil and gas exploration/production company Hess (NYSE:HES), in a $53 billion all-stock deal.
Yet while Chevron has a massive transaction on its plate, don’t assume that management is putting the brakes on share repurchases.
Instead, once the deal (expected to be accretive to cash flow per share) closes, Chevron intends to slightly increase its repurchase target, from $17.5 billion to $20 billion per year. In terms of dividends, the company is now proposing an 8% increase to its quarterly payout, effective this upcoming January.
HP (HPQ)
Admittedly, “former blue-chip” may be a more accurate descriptor for HP (NYSE:HPQ). Yet while removed from the Dow a decade ago, and continuing to struggle with growing its business during this time, the PC and printer company’s shares have gained by 132.8% since 2013.
A big reason for this is likely the fact HPQ stock has been one of the blue-chips with share buyback programs, aggressively buying back shares over the past few years. HPQ buybacks totaled $6.2 billion in FY2021 (ending October 2021), and $4.3 billion in FY2022.
While easing on buybacks during FY2023, HP plans to tap into this strategy again this fiscal year. The company intends to use all of its free cash flow for return of capital efforts. Based on the planned level of dividend payouts, this implies at least $2 billion in buybacks between now and next October.
Lowes (LOW)
In past coverage of Lowe’s (NYSE:LOW), I’ve argued why shares in this home improvement retailer are one of the best among the blue-chips. A big reason, of course, is the stock’s dividend aristocrat status.
Yet alongside this, another big reason to be bullish about LOW is the company’s share repurchase policy.
Late last year, management announced that the retailer intended to increase its existing buyback program (authorizing the repurchase of up to $6.4 billion in LOW stock) by another $15 billion. Lowes has bought back around $4.15 billion worth of shares during the first half of 2023, and could buy billions more in the coming quarters.
Even if the underlying business experiences a low level of growth over the next few years, these buybacks stand to boost Lowes’ earnings. The latest sell-side forecasts call for earnings to climb higher over the next few fiscal years.
United Parcel Service (UPS)
In August, I laid out the bear case for United Parcel Service (NYSE:UPS). In a nutshell, I argued that achieving labor peace with the Teamsters Union representing the transportation giant’s workers may have a negative impact on future earnings.
However, there may be a way for management to counter the impact of higher labor costs on the performance of UPS stock going forward: share repurchases.
Unions may bemoan buybacks, but being one of the blue-chip stocks with share buyback programs may be only way UPS’s shareholders can also “win,” following labor’s recent victory at the company.
For 2023, UPS is targeting around $3 billion in share repurchases. By repurchasing shares and reducing the share count, UPS could improve earnings performance and drive a recovery in its stock, which has been negatively affected by labor and recession worries.
Exxon Mobil (XOM)
Just like Chevron, Exxon Mobil (NYSE:XOM) is another Standard Oil descendant with a penchant for share repurchases. Last December, the integrated oil and gas giant raised its share buyback program ceiling from $30 billion to $50 billion, and extended it through 2024.
Also similar to CVX, a big topic with XOM stock lately has the announcement of a mega-merger. As you likely heard, the company intends to acquire Pioneer Natural Resources (NYSE:PXD) in a $59.5 billion all-stock deal. Both of these things could bode well for Exxon shareholders.
Buybacks, coupled with cost-saving measures, are good news for future increases with earnings per share. The Pioneer transaction is expected to be immediately accretive to earnings, with additional cost and growth synergies expected to arise. Add in XOM’s 3.53% dividend, and the stock may be poised to deliver solid total returns in the years ahead.
On the date of publication, Thomas Niel did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
