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
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
21. $21.1 billion. The estimated cost to shareholders of Bank of America's
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
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
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.
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