By Tali Arbel, AP Business Writer
NEW YORK (AP) — Companies that have lots of cash but don't want to go on buying sprees or ramp up production are increasingly buying back their own shares this year, often announcing the plans in tandem with dividend increases.
The moves can bolster a stock's price by cutting supply. It also can boost the key Wall Street metric of earnings per share because the company's profit is measured against fewer outstanding shares.
By reinstating programs frozen during the recession or by starting new buybacks companies are indicating they feel comfortable cutting their record cash levels. But the trend also indicates companies expect slow growth, Marc Pado, a market strategist at Cantor Fitzgerald, said Monday.
"In a fast-growing economy you grow by acquisitions or expansion," Pado said.
Buying back shares is a "medium road" for companies wanting to unload cash because they can't earn much holding onto it, he said.
As of June 4, 310 companies had said they planned to buy back up to $173.3 billion worth of stock for far in 2010, according to figures released Monday by deal-tracking firm Dealogic. By the same date in 2009, 253 companies had planned $20.3 billion in stock buybacks, Dealogic said.Using some of the cash reserve on corporate balance sheets to buy up shares "does suggest a little bit of improvement in sentiment," said Jack Ablin, chief investment office of Harris Private Bank.
Buybacks also can reduce the threat of a takeover and prevent earnings per share from weakening when employees and others exercise stock options.
Buyback programs collapsed as the financial crisis took hold in late 2008 because companies hoarded cash as their stock prices plunged.
Many companies are announcing buybacks in tandem with a boost in quarterly dividend payments to shareholders, another signal of confidence about future earnings levels.