AT&T (NYSE: T) is following up its second-quarter bottom-line success with something else designed to increase the price of its shares. Apparently, management didn't think its 8.7% increase in net profit was enough on its own to increase its stock's value. So the board of directors approved a plan to allow the company to buy back up to 300 million more shares, or around 5% of outstanding shares, at a cost of as much as $11.1 billion.
This repurchase plan is on top of another 300 million-share repurchase scheme initiated in 2010. AT&T has repurchased 143.5 million shares at a cost of $4.6 billion through the end of June 2012.
AT&T chairman and CEO Randall Stephenson said in a statement that "This action allows us to continue returning cash to our shareholders through dividends and buybacks while maintaining a strong balance sheet and investing in the future of our business."
AT&T shareholders are probably feeling pretty good about their investment in the carrier. So far this year, AT&T stock has gone up 23%, and the company pumps out a steady quarterly dividend that yields 4.7% at current share price. But there are two things about this announcement that make me, as an AT&T stockholder, a bit uneasy.
First, there is the company's dwindling supply of cash on hand. Since the beginning of the year, cash and equivalents dropped from $3.19 billion to $2.15 billion. For a capital expenditure-heavy industry such as wireless telecom, is the buying back of shares at a relatively high multiple -- a P/E of almost 50 -- as wise as using that cash to expand its LTE network? As it now stands, Verizon (NYSE: VZ) covers more than 330 markets with its LTE network, compared with only 47 markets under AT&T's LTE blanket.
My second cause of concern is even more troubling. Was this buyback program initiated mainly to raise the stock price above a certain executive-compensation threshold? As chairman of AT&T's board of directors, Randall Stephenson has influence that could tip the scales of any compensation decisions regarding his pay as CEO.
Could this be one way to recover part, or all, of that $5 million he lost in his 2011 pay because of the failed AT&T/T-Mobile USA merger? That setback moved Stephenson into fourth place in the 2011 wireless industry executive-compensation race. His total compensation of $22 million fell just behind Verizon CEO Lowell McAdam, at $23.12 million, and second-place Motorola Solutions CEO Greg Brown, who pulled in $29.33 million. In first place, and in a position that would take more than some stock buyback plan to usurp, is Apple's (Nasdaq: AAPL) Tim Cook. His 2011 compensation was a scary $378 million.
I hope the stock repurchase-plan is done for the right reasons, but the cynic in me is always wondering.
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