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Share Buybacks Climb To Record Highs

Written By Brian Hicks

Posted March 3, 2015

America’s corporations like themselves so much that they’re buying back their own shares in greater amounts than ever.

Home Depot, Inc. (NYSE: HD), TJX Companies, Inc. (NYSE: TJX), Comcast Corporation (NASDAQ: CMCSA), and Boeing Company (NYSE: BA) were among the 123 companies that disclosed their planned share buyback expenses this past February.

Home Depot, the largest U.S. home-improvement retailer, announced an $18 billion stock buyback program, Comcast upped its repurchases to $10 billion, and TJX will spend as much as $1.9 billion on its own stock this year.

Sweeten The Deal

Last December, I wrote about Boeing increasing its annual dividend by 25% from $2.92 to $3.64. Analysts knew that a dividend jump was coming, but the average projection was $0.32 behind the actual value.

Following its dividend hike, BA announced that it would expand its share-repurchasing program from $10 billion to $12 billion, the largest ever of its kind at the time.

Out of the original $10 billion program, only $5.2 billion was spent and the $4.8 billion remainder was earmarked for increasing the company’s dividend.

This move not only restored the waning confidence of current shareholders, but also increased the incentive for new investors to purchase Boeing’s stock.

Despite only spending just over half of the allotted $10 billion, Boeing altered the program to include a 20% increase upon renewal, which is anticipated to last between two to three years.

On the strength of the news, BA’s stock price jumped from $122 to $125, about 2.5%, during after-hours trading. Since then, it’s gone as high as $158.31 and is currently sitting at $156.04.

At The Wealth Advisory, we’ve recommended Boeing as part of our portfolio since October of 2011. In that time, it’s gone up 162%.

Specializing in long-term growth, we focus on companies that pay hefty dividends to shareholders. Take a look at what we offer at The Wealth Advisory here.

If Home Depot, TJX, or Comcast have similar aspirations, expect comparable dividend increases and subsequent stock jumps from them in the near future.

Under New Ownership

If the term “nationalization” could be applied to large corporations, this would be the appropriate situation.

Share buyback programs reached a record high last month as companies all over the country announced a total of $104.3 billion in planned repurchases.

When share buybacks totaled $99.8 billion in July 2006, the S&P 500 rose 23% in the next 14 months before hitting an all-time high.

Low interest rates have resulted in increased borrowing, which, in turn, allows companies to own greater portions of themselves. As long the highest return on the dollar continues to not come from expansion but from buying back shares, expect the trend of buybacks to continue.

S&P 500 members have spent more than $2 trillion on their own stocks since 2009, as five years of profit expansion and record-low interest rates bolstered corporate cash holdings. In that time, the resulting equity rally has seen the index grow to over three times its size.

Companies involved in buying back their own shares were on pace to spend a total equivalent to 95% of their earnings on repurchases and dividends in 2014, according to data for the month of October.

S&P 500 companies currently hold about $1.75 trillion in cash. The index grew 5.5% in February, rebounding from the worst month in a year with the biggest gain since October 2011.