17 companies spending $2B on stock buybacks a year

But remember: Repurchases don't always pay off for investors.

By InvestorPlace Apr 3, 2012 10:54AM

By Jeff Reeves


Standard & Poor's recently reported that stock buybacks are finally on the decline after almost three years of increases. Stock buybacks are a fairly common way for companies to return wealth to their shareholders. Although not as tangible as dividends, which get mailed directly to anyone owning the stock, the mechanics of a share buyback also can provide shareholder value and give shares a boost.


Consider that while Apple (AAPL) made waves with the announcement of a long-awaited dividend, at $2.65 a share, the tech giant also committed $10 billion toward stock buybacks at the same time. There's a reason the company made these two big announcements hand-in-hand.


The concept of a buyback is simple: If there are 100 equal shareholders in a $100 million company, each owns a 1% stake, or $1 million. But if the corporation decides to "invest in itself" and buy back the ownership stake of 10 people, the remaining 90 shareholders now own a bigger part of the company -- a $1.1 million stake instead of a $1 million stake, presuming the value is constant.


In short, fewer shareholders means the remaining folks owning stock have a bigger piece of the pie — that theoretically is worth more.


Another benefit is that as the relative ownership stake of each investor increases, the earnings per share naturally increase, too, because there are fewer shares outstanding.


Let's say a company has 1 million shares outstanding and has net income of $1 million. Simple math says earnings per share total $1. But if the company buys back 100,000 shares, the earnings per share increase simply by virtue of the math -- $1 million in profits divided by 900,000 shares gives us $1.11. Earnings per share "increase" like magic this way to the tune of 11% despite no real movement in total net income.


There obviously is a risk here that the "fuzzy math" of buybacks isn't really growth. Wall Street is smart enough to figure out these games eventually, and a company can't mask underperformance forever merely through repurchases that juice earnings per share numbers.


Also, there's the very real cost of buybacks. Stock repurchases aren't cheap, and if a company spends billions of dollars out of optimism in current operations, it might take away from funds for research, acquisitions or other equally compelling investment opportunities.


On the whole, however, many investors see buybacks as a very positive sign. If you're in this camp, then here are 17 companies with the biggest buyback programs on Wall Street — averaging $2 billion or more spent on stock repurchases over the past seven years.

  • Exxon Mobil (XOM): $170.2 billion in stock buybacks since 2004
  • Microsoft (MSFT): $101.2 billion in buybacks since 2004
  • International Business Machines (IBM): $81.8 billion in buybacks since 2004
  • Intel (INTC): $43.1 billion in buybacks since 2004
  • Wal-Mart Stores (WMT): $37.4 billion in buybacks since 2004
  • Goldman Sachs (GS): $36.1 billion in buybacks since 2004
  • ConocoPhillips (COP): $33.1 billion in buybacks since 2004
  • Amgen (AMGN): $29.1 billion in buybacks since 2004
  • Time Warner (TWX): $29.0 billion in buybacks since 2004
  • Pfizer (PFE): $26.2 billion in buybacks since 2004
  • Chevron (CVX): $24.0 billion in buybacks since 2004
  • UnitedHealth Group (UNH): $21.5 billion in buybacks since 2004
  • Philip Morris (PM): $21.3 billion in buybacks since 2004
  • DirecTV (DTV): $18.5 billion in buybacks since 2004
  • Travelers (TRV): $17.6 billion in buybacks since 2004
  • Coca-Cola (KO): $16.4 billion in buybacks since 2004
  • Oracle (ORCL): $16.2 billion in buybacks since 2004

(Microsoft owns and publishes Top Stocks, an MSN Money site.)

Of course, some of those buyback plans didn't necessarily result in market-beating returns — and some of these companies have either increased or decreased their pace as of late. Here's a more in-depth look at buybacks and performance for these top stocks*:

*as of March 28


InvestorPlace contributor Ivan Martchev wrote a great post this week pointing out how since 1998, Autozone (AZO) has repurchased a whopping 128.8 million shares — three times the current number of total shares outstanding! He then went on to highlight some of the other massive stock buyback plans in recent memory.


But as this table shows, sometimes buybacks fail to pack a punch. Although the vast majority of these stocks have outperformed, it's worth noting that Oracle, Travelers and Goldman underperformed in 2011 despite big money dedicated to repurchases. And in Goldman's case, the underperformance is pretty darn ugly.


The same holds true in the long term, with Intel, Amgen, Time Warner and Pfizer all lagging the market during the past seven years despite a minimum of $26 billion spent on repurchases in that period!


So while it's certainly a plus for a company to be repurchasing shares, it also pays to look beyond just the cash spent on stock buybacks.


Of course, many investors prefer companies to use their cash for a quarterly dividend check. Hundreds of companies obliged by hiking their payouts in Q1, including these 30 blue-chip companies increasing dividends.


Jeff Reeves is the editor of InvestorPlace.com, and the author of "The Frugal Investor's Guide to Finding Great Stocks." Write him at editor@investorplace​.com or follow him on Twitter via @JeffReevesIP. As of this writing, Jeff did not hold a position in any of the aforementioned securities.


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Apr 3, 2012 12:12PM
Due to the uncertain regulatory climate of the government on taxes and regulations, it is less risky for companies to buy back their own stock and increase shareholder value then to invest in more plants and therefore more jobs and grow their companies. The downside is that innovation is not invested for the future. This will make our competitive positions worse long term. Of course this means nothing for job growth also.
But hey our government is looking out for you!!!!!
Also if this President gets his way and increases the tax on Dividends, there may be many companies that will return their money to shareholders in alternative ways then Dividends.  For those relying on the Dividend to supplement their retirements they should think about the loss of Dividends before they pull that voting lever this fall.
Apr 3, 2012 1:41PM
Lets face it... we all would be better off if government was 1/2 the size it is now and they only worried about the U.S.  Now they are in everything and every time the want to do something its more taxes to pay for it and only the rich and the poor benefit from it.... so who pays both ways... us the working class.. the middle guy that is going to start dealing in cash like th check drawers do or we will vanish soon.....
Apr 4, 2012 12:39AM
Print lots of stocks when they a selling high .. then buy them back when they are bottomed out .. and call that net profit, for setting back and doing next to nothing.  Might be worth keeping an eye on that peanut shuffling game.
Apr 3, 2012 3:16PM
Rich own all the stock. So where do you think the moneys going?
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