After a spectacular year in terms of earnings in the US market, companies on the other side of the pond hope to invest more cash in 2022 in buybacks and dividends for shareholders, according to Mark Maurer en The Wall Street Journal.
“Many companies have recovered from the blow of the coronavirus pandemic and are in a period of strong growth, which gives them a wide margin to reward their shareholders, “he said. Howard Silverblatt, a senior index analyst at S&P Dow Jones Indices, a unit of S&P Global.
“Most companies have significant cash flow positions right now,” Silverblatt said. “There is enough cash to do almost anything.”
S&P 500 companies had $ 3.78 trillion in cash and cash equivalents at the end of the third quarter, compared to $ 3.41 trillion in the prior year and $ 2.19 trillion in the 2019 period, according to the data provider S&P Global Market Intelligence.
For the year that is about to close, it is expected that share buybacks in S&P 500 companies reach an estimated record of 850,000 million dollars, 63.6% more than last year, when many companies temporarily stopped those programs, and 16.6% from 2019.
At third quarter this year, buybacks exceeded $ 234.6 billion, beating the previous record of $ 223 billion, set in the fourth quarter of 2018.
The companies paid cash dividends with an average of $ 15.36 per share in the third quarter, also a peak, compared to $ 13.97 in the prior-year quarter, the data shows.
Companies buy back their shares and pay dividends to return the cash to shareholders. With those buybacks, they also seek offset part of the dilution What happens when companies issue shares to their own employees. The timing of these decisions is key, as repurchasing shares can be expensive when the stock markets are as expensive as they have been this year.
Regulators on alert
But buybacks face growing skepticism from regulators and legislators, and some critics say they allow executives paid in stocks or options to increase their compensation at the expense of workers’ wages. In mid-December, the Securities and Exchange Commission proposed increased disclosure requirements on buybacks, which would force companies to detail their justification and the criteria used to determine the number of shares to buy back.
Last month, the Camera approved a spending package of 2 trillion dollars that would introduce a 1% tax on the amount that companies spend to buy back shares. But the legislation faces obstacles in the Senate, in part due to opposition from the senator. Joe Manchin, a key vote.
Some buybacks to stand out
Earlier this month, the network equipment provider Ciena Corp. said it planned buybacks of shares worth $ 250 million. In this type of buyback, a company buys most of the shares in advance through a contract negotiated with an investment bank.
“We thought it was the right thing to do, to make up for the fact that we were short the last two years,” said the CFO James Moylan.
The company fell short in a few 200 million dollars in a plan that he announced in December 2018 to buy back around a total of 450 million dollars for the next three years, Moylan said. In part, that was because the number of customer orders declined in the early stages of the pandemic and the company faced delays in activating new services and equipment.
S&P 500 companies increased their capital expenditures to $ 528.64 billion during the first three quarters of the year, 11% more than in the period of the previous year and 1.2% compared to the period of 2019.
This month, the toolmaker Stanley Black & Decker Inc. said it plans to buy back shares worth $ 4 billion in 2022. “Part of the funds will come from the planned sale of $ 3.2 billion of its business assets security to the Swedish security service provider Security AB.”, He said President and CFO Donald Allan Jr.
“Stanley did not make buybacks this year, instead focused on acquisitions,” Allan said. Overall, Stanley seeks to spend roughly the same amount on mergers and acquisitions as it does on shareholder rewards. Stanley intends to buy back shares next year.
“We really think our stocks are undervalued,” Allan noted.
Johnson Controls International PLC plans to buy back around 1.4 billion dollars in stocks for the fiscal year ending in September, up from $ 1.3 billion previously. This month, the construction technology firm said that would increase your dividend quarterly cash in a 26% at $ 0.34 per share.
“Johnson Controls determines its dividend based on a annual target of 40% to 45% of adjusted earnings per share “, He said Chief Financial Officer Olivier Leonetti, adding that it spends the remaining funds on buybacks.
“We believe that we will have the ability to invest in the business and deploy all of our free cash flow in the form of dividends and buybacks,” said Leonetti.
Companies’ capital allocation strategies are unlikely to change by 2022, even if a new variant like Omicron emerges or Congress enacts legislation to increase corporate taxes, the executives said.
“It would have to be a major recession due to some economic shock that occurs, where we begin to see our revenues decline between 30% and 40%,” said Allan, speculating on what could force the company to withdraw. “I really don’t see that scenario as a possibility.”
However, executives say they are closely monitoring anything that may affect spending decisions.
“We are paying attention to changes in fiscal policy both in the US and abroad,” he said. Wetteny Joseph, Chief Financial Officer, Zoetis Inc., an animal health company.
The company, he said, plans to buy back $ 880 million in shares left over from an existing program and start a new, recently authorized $ 3.5 billion program.