Some investors don’t care for share buybacks. In theory, buybacks are good because they reduce the number of outstanding shares and drive up earnings on a per-share basis. In practice, though, companies are notoriously bad at timing their purchases – buying their own shares when prices are high.
However, the Standard & Poor’s report on share buybacks in the fourth quarter offers a glint of hope: Companies actually reduced buybacks last quarter by 22.8 per cent from the previous quarter, at a time when the S&P 500 surged 11.2 per cent. And in the third quarter of 2011, when the S&P 500 slumped more than 14 per cent, buybacks rose to their highest level since the end of 2007.
“Companies appear to have finally gotten it right,” said Howard Silverblatt, senior index analyst at S&P Indices, in a note. That is, they’re buying low, rather than high.
It will be interesting to see what Apple Inc. does to the overall buyback figures later this year. The company announced earlier this month that it would dip into its enormous cash hoard with plans to pay a dividend and buy back up to $10-billion (U.S.) worth of shares over the next three years.
That could make Apple one of the most aggressive buyback companies within the S&P 500 and make a noticeable addition to 2012’s buyback numbers. But will it reinforce this newfound savvy among companies for buying low? Apple shares have gone parabolic recently and hit a new record high of $621.45 on Wednesday.