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Cash & Working Capital

Companies Keep Robust Share Buyback Pace

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November 19, 2018

Returning capital to shareholders a prevailing theme for 2018; buybacks great with dividends also strong

BenjaminsIt seems multinationals have finished taking care of their own businesses since a post-tax-reform cash infusion. Now it’s time for shareholders. This was reflected in Intel’s recent announcement that its board had approved a $15.0 billion increase in its authorized stock repurchase program.

“Intel focuses on building value by first investing in itself and growing its capabilities. The company then looks to supplement and strengthen its capabilities through acquisition and strategic investments. Finally, Intel provides the return realized by these investments to its shareholders through its dividend program and opportunistic stock repurchases,” the company said in a statement.

This adds to a so far banner year for stock repurchases. In October there were 101 new buyback authorizations for a total of $73.8 billion, according to data from Birinyi Associates. Year-to-date, total authorizations stand at $894.02 billion, which is the greatest year-to-date value of authorizations ever, Birinyi said. In fact, announced authorizations for stock buybacks in 2018 are on pace to surpass $1 trillion.

“Returning capital to shareholders has been a prevailing theme for markets in 2018 and has well exceeded even the high expectations post US tax reform,” wrote Tom Joyce, Managing Director CIB Capital Markets Strategist at Deutsche Bank Securities in a note to clients. “Numerous equity strategists on the Street have pointed to share buybacks in 2018 as the most important source of demand for shares in the market.” He added that a buyback blackout period for many companies that existed during the October earnings season was “a key contributor to the sharp selloff in US stock markets ahead of the US midterms.” Mr. Joyce said other contributors were slowing global economic data, trade policy escalation, China slowdown concerns, rising political risk in Europe, and ongoing Fed tightening.

Meantime, dividend numbers post-tax reform, “have been impressive,” Mr. Joyce said. He said that in the first quarter of 2018, and for the first time in 15 years, “not a single company in the S&P 500 cut its dividend.” In fact, he said, a third of S&P companies increased their dividend in the first half of 2018, with an average increase rate of 10%. “For the 12-month period ending Sept 2018, net dividend increases for the S&P 500 rose $56 billion in aggregate,” Mr. Joyce pointed out, adding that 2018 “is now on pace to becoming the seventh consecutive year of record dividend payments.”

Still, buybacks have been the go-to strategy this year. “Though record amounts of capital have been paid in dividends and buybacks in 2018, share repurchases continue to be the favored path for most companies,” Mr. Joyce said.

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