From Lu Wang and Oliver Renick, http://www.bloomberg.com:
Corporate America’s love affair with itself grows more passionate by the month.
Stock buybacks, which along with dividends eat up sums of money equal to almost all the Standard & Poor’s 500 Index’s earnings, vaulted to a record in February, with chief executive officers announcing $104.3 billion in planned repurchases. That’s the most since TrimTabs Investment Research began tracking the data in 1995 and almost twice the $55 billion bought a year earlier.
Even with 10-year Treasury yields holding below 2.1 percent, economic growth trailing forecasts and earnings estimates deteriorating, the stock market snapped back last month as companies announced an average of more than $5 billion in buybacks each day. That’s enough to cover about 2 percent of the value of shares traded on U.S. exchanges, data compiled by Bloomberg show.
“Companies that are earning a lot of money and generating cash are borrowing money at basically zero rates and buying back,” said Neil Grossman, the St. Petersburg, Florida-based chief investment officer at Tkng Capital Partners. “From an investor’s standpoint, you want the highest return on your dollar, period. If the highest return comes not from growing your business but buying your shares back, that’s fine.”
Home Depot Inc., Comcast Corp. and TJX Cos. were among 123 companies that disclosed repurchases in February as five years of profit expansion and record-low interest rates bolstered corporate cash hoardings.
To continue reading: American Companies Are in Love With Themselves
Two facts to keep in mind. Many companies are borrowing the money they use to fund buybacks. Also, company executives are no different than most people. Historically, they have bought back shares (and support the stock price, upon which exercise of their stock options depend) much more at market highs than lows. See “Crisis Progress Report (4),” SLL 3/3/15
