Stock markets finished lower on Wednesday, giving back early gains as investors started to worry about just how sustainable the bull market move in November was. Losses were biggest for the Nasdaq Composite (NASDAQINDEX: ^IXIC), but even there, the declines were relatively modest in comparison to the huge gains stock investors have enjoyed since the end of October. The S&P 500 (SNPINDEX: ^GSPC) and Dow Jones Industrial Average (DJINDICES: ^DJI) eased lower as well.
Index | Daily Percentage Change | Daily Point Change |
|---|---|---|
Dow | (0.19%) | (70) |
S&P 500 | (0.39%) | (18) |
Nasdaq | (0.58%) | (83) |
Data source: Yahoo! Finance.
In a rising interest rate environment, many companies have had to scramble to get capital. However, other businesses generate huge amounts of cash flow, giving them the opportunity to return capital to shareholders through stock buybacks. On Wednesday, blue chip stocksExxonMobil (NYSE: XOM) and Mastercard (NYSE: MA) were the latest companies to announce new share repurchase programs that could return as much as $51 billion to investors over the next couple of years.
ExxonMobil announces its capital plans
Shares of ExxonMobil were down more than 1% on Wednesday. That made sense, given a $3 drop in the price of crude oil to $69 per barrel, but the oil giant also released its strategy for capital allocation over the next several years.
ExxonMobil believes that it should be able to boost its annual earnings and cash flow by $14 billion per year through 2027. That's because the company has cut its structural costs while improving the mix of its business to include higher-value performance chemicals and lubricants, as well as low-emission fuels. Meanwhile, investments in high-return, low-cost projects in the upstream segment should help Exxon double the segment's earnings compared to pre-pandemic 2019 levels.
As a result, ExxonMobil now sees itself being able to spend $20 billion per year after the merger with Pioneer Natural Resources (NYSE: PXD) closes, likely in 2024. That could return $40 billion to shareholders by the end of 2025. Moreover, if oil prices behave more favorably, then those numbers could end up being relatively low. That $40 billion figure is 10% of ExxonMobil's market capitalization, representing a real boost for continuing shareholders.
Mastercard looks to buy high
Shares of Mastercard rose a fraction of a percent on Wednesday, moving ever closer to new all-time highs. Even with the stock looking a bit expensive, the card giant announced a new stock buyback program to supplement its existing repurchase arrangement.
Mastercard's board of directors authorized the company to spend up to $11 billion repurchasing its stock. The new program will take effect once the current buyback program is complete. With $3.5 billion left on the existing buyback authorization, investors in Mastercard could eventually see $14.5 billion in stock get repurchased by the company.
At the same time, shareholders also learned that they'd get a bigger cash reward for being investors. Mastercard increased its dividend by 16% and will now pay shareholders $0.66 per share each quarter. The first new payment will go to investors in February 2024. Given the massive move higher in Mastercard stock over the past decade, the dividend yield is still small at 0.6%, but it's an incremental part of shareholder return.
Some investors worry when companies buy back stock near record levels. Yet since its initial public offering in 2006, it's been rare for Mastercard not to be close to an all-time high. Previous buybacks have turned out well for the company and investors.
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Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Mastercard. The Motley Fool recommends Pioneer Natural Resources and recommends the following options: long January 2025 $370 calls on Mastercard and short January 2025 $380 calls on Mastercard. The Motley Fool has a disclosure policy.
