28 Fascinating Facts About Share Buybacks

If you're looking for a fast, effective, and widely used method of destroying shareholder value, look no further than share buybacks.

Surprised? Bewildered? Perhaps feeling a little betrayed? Alas, it's true -- a good chunk of the companies that have trumpeted share buybacks over the past few years might as well have balled up $100 bills and lit them on fire.

Proof of this comes in the form of a June research report from Credit Suisse, which did a great job digging into the issue. There are certainly caveats here. For one, the period studied -- 2004 to 2011 -- is a relatively short period of time and it includes one of the market's biggest crashes in recent memory. That said, there are many eye-opening tidbits from Credit Suisse's report that are worth considering the next time you're getting stoked about a share-buyback announcement.

1. $2.7 trillion. Between 2004 and 2011, S&P 500 companies spent a total of $2.7 trillion on share buybacks.

2. 61%. That's the percentage of the S&P 500 companies that bought back shares and had a positive return for their purchases. Thirty-one percent had a negative return and the remainder did no buybacks at all.

3. 36%. The percentage of the companies whose buybacks had an estimated annual return of 7% or better.

4. 280. The number of S&P 500 companies -- out of the 460 that bought back shares between 2004 and 2011 -- that didn't muster a 7% annual return from their investments.

5. $132 billion. The amount that companies spent on buybacks in May and August of 2007, when the S&P 500 was hitting pre-recession high points. That's more than the $131 billion spent in all of 2009, when the market was at its low point.

6. 33% less. While these companies spent $2.7 trillion on share buybacks, they spent just $1.8 trillion, or 33% less, on dividends.

7. $3.7 trillion. The amount spent on capital expenditures over the same period. Both capital expenditures and dividends were far less pro-cyclical than share buybacks.

8. 23%. The percentage of buybacks over the seven-year period done by tech companies -- the largest share of any industry group. The next closest was consumer discretionary with 15% of the total.

9. $26 billion. The total amount spent on buybacks by S&P 500 utility companies -- typically known for generous dividend policies -- over the period. By comparison, tech companies spent $619 billion.

10. $117 billion. The total amount spent by financial companies on buybacks in 2007. That was the highest of any industry group that year. In 2009, they spent less than $7 billion, which ranked them seventh of the 10 industry groups. So much for being the experts.

11. 51%. The share buybacks of consumer staples companies fell by roughly half between 2007 and 2009, the smallest decrease of any industry group. The largest decline was telecom, which saw buybacks fall 97%. Financials were a close second with a 94% drop.

12. 2.5%. Consumer staples companies' buybacks in 2011 were within 2.5% of their peak level in 2007. Telecom companies haven't bought back any shares since 2009.

13. $439 billion. The total amount of profit that Credit Suisse estimates could have been generated by the $2.7 trillion spent on buybacks.

14. $231 billion. The estimated total amount of dividends that would have been paid without the buybacks.

15. 128. The number of companies whose share buybacks returned 10% or more per year over the seven-year period.

16. 34% per year. The annualized return estimated on Dollar Tree's buybacks, the highest among companies that spent $1 billion or more on buybacks.

17. 1. The number of financial companies among the top 10 in terms of buyback performance. The sole top performer was Visa.

18. $21.4 billion. The amount spent by Philip Morris International (NYSE: PM  ) on buybacks during the period, the most among the top ten performers.

19. -51.7%. The estimated annual loss from the AIG buybacks during the period, the worst among companies that spent more than $1 billion on buybacks.

20. -31.1%. The estimated annual return for the share buybacks from Sprint Nextel (NYSE: S  ) , the worst-performing, non-financial company that spent more than $1 billion on buybacks.

21. $21.1 billion. The estimated cost to shareholders of Bank of America's (NYSE: BAC  ) buybacks between 2004 and 2011.

22. 24.9% versus -58.9%. The comparative estimated annual buyback returns for the top-performing energy company (Diamond Offshore Drilling) and the worst-performing energy company (Alpha Natural Resources (NYSE: ANR  ) ).

23. 123.6%. Difference between the estimated annual buyback returns of the top-performing consumer discretionary company (Chipotle) and the worst-performing consumer discretionary company (Cablevision).

24. $180.1 billion. The amount spent by ExxonMobil on buybacks between 2004 and 2011, the largest of any company considered. Exxon's estimated annual return from those buybacks was 4.9% per year.

25. -11.3%. The estimated annual return from Hewlett-Packard's (NYSE: HPQ  ) $61.1 billion in buybacks during the period. That was the worst among the 10 companies that spent the most on buybacks.

26. 15.3%. The estimated annual return from IBM's $90 billion in buybacks between 2004 and 2011. That was the best among the 10 companies that spent the most on buybacks.

27. 255 million. The number of shares Goldman Sachs bought back between 2004 and 2011. The $37.7 billion spent to do that was the most of any finance company. It earned Goldman investors an estimated 8.2% loss per year.

Finally... (drumroll please)

28. 98. The number of times that the management teams' buyback performance outperformed a simple, dollar-cost-averaging result. Managements' performance lagged the DCA result 332 times. In other words, even though they theoretically should know the most about their companies and when the best time to buy is, management teams did a terrible job timing the market with their buybacks between 2004 and 2011.

It would appear that Bank of America blew it when it came to share buybacks over the seven years that Credit Suisse looked at. But does that mean that investors should shun the stock going forward? In a brand new special report, Motley Fool banking expert Anand Chokkavelu tackles exactly that question, breaking down the pros and cons of an investment in B of A right now. Click here to grab a copy of this premium report.

The Motley Fool owns shares of Bank of America, Chipotle Mexican Grill, ExxonMobil, and International Business Machines. Motley Fool newsletter services have recommended buying shares of Chipotle Mexican Grill, American International Group, Goldman Sachs Group, and Visa. Motley Fool newsletter services have recommended creating a synthetic long position in International Business Machines. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Matt Koppenheffer owns shares of Bank of America, but does not have a financial interest in any of the other companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or Facebook. The Fool's disclosure policy prefers dividends over a sharp stick in the eye.

Read/Post Comments (9) | Recommend This Article (23)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 31, 2012, at 4:57 PM, EquityBull wrote:

    Excellent piece of data. One has to wonder if companies should take all that buyback money and if they cannot invest it back in their own business at a high rate of return then give it back to the shareholders as an increased dividend or special dividend.

    Let the shareholders invest it or blow it at the casino. CEO's should not be stock pickers. The fact that CEO's don't usually care about the stock price or so they say all too often means they are in no position to time the market. Proof being in the stats above.

    Will this ever happen? Of course not. Just like you can royally crater any company here in the USA and get a bonus and not get fired as a CEO. That has not changed nor will the buyback strategies of these companies. Very sad that shareholders are so lax and let these guys get away with destruction of shareholder value and pillaging the company coffers for their own personal gain.

    Of course there are some great companies out there for which the above does not apply. These are the ones I try to find and invest in!

  • Report this Comment On July 31, 2012, at 7:30 PM, dar8000 wrote:

    TMF has documented before that companies tend to do buy back programs when their stock price is high.

    The statistic that I found interesting was that 128 of the 460 (28%) companies returned 10% or more for each of the 7 years.

    Seems like a buy back company with a stock price NOT near the 52 week high should be a candidate for further investigation.

  • Report this Comment On July 31, 2012, at 7:50 PM, TMFKopp wrote:


    "Seems like a buy back company with a stock price NOT near the 52 week high should be a candidate for further investigation."

    That's an interesting thought -- maybe I'll have to follow up with an article looking at a few of those companies!

    Thanks for reading-


  • Report this Comment On August 01, 2012, at 12:55 AM, szeka01 wrote:

    How did Phillip Morris do on their share buybacks? just curious.

  • Report this Comment On August 01, 2012, at 3:01 AM, rayjayjj wrote:

    I am also curious about GE's Buy Backs? Any Data on GE would be appreciated?

  • Report this Comment On August 01, 2012, at 8:48 AM, kwl1763 wrote:

    Great article, the obvious question this brings up is should we as owners start demand more dividends and less buybacks given this. On the surface yes, unfortunately that is a more complicated question especially with the taxation issues with dividends.

    I think a more prudent route would be for us to demand a more dollar cost average approach.

    It's not simply that the companies aren't good "stock pickers. I am in Finance at a fortune 500. The very natural reaction when things are doing well and you have excess reserves is to spend them one way or another. One way is buybacks. When things get scary companies pull back everything capital expenditures, R&D, SG&A, and buybacks. As we all know investing only when things look rosey is a disaster but in essence that is what companies due not due to trying to time the market but more due to just general pullbacks and cautiousness.

    I am not defending. In fact I advocate regularly for us to invest (both in capital expenditures, acquisitions and share buybacks) when things look horrible and sell when things appear to be on an ever increasing uptrend but fighting normal tendency to be cautious when uncertainty comes up.

  • Report this Comment On August 01, 2012, at 9:01 AM, stockdissector wrote:

    It does seem like companies who initiates stock buy backs are throwing it to the wind. I'm glad I am not the only one who feels this way!

  • Report this Comment On August 03, 2012, at 2:33 PM, truman1987 wrote:

    I think buybacks are a sell signal. Buybacks indicate a board and management with a lack of creativity in regards to knowing where to invest their money. How about R&D, purchasing new technologies, product development, updating equipment, becoming more efficient, or purchasing competitors as ways to use extra money to grow the company?

    According fact #3 2/3rds of the time it is a sell signal. Better odds than a coin flip.

  • Report this Comment On August 05, 2012, at 7:32 PM, stockdissector wrote:

    I agree with you truman1987.

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