Increased Buyback Activity Aimed at Neutralizing Employee Options

The $55.3 billion in share repurchases represents a 15.6% improvement over the fourth quarter of 2009, and marks the third quarter in a row that S&P 500 companies have increased their stock buyback activity, according to the announcement.  

“Companies have officially returned to the buyback market; however their purchases appear to be aimed at neutralizing employee options, and therefore are preventing earnings dilution,” said Howard Silverblatt, Senior Index Analyst at S&P Indices, in a news release. “Given the record amount of cash on their books, we expect the S&P 500 companies to continue this strategy, even if the market picks up from the current correction mode and puts more options in the money.”  

S&P Indices also determined that during the first quarter of 2010, 251 issues participated in stock buyback programs, up from the 214 that did so in the fourth quarter of 2009, and the 194 that participated in the first quarter of 2009. While there was broader participation, buybacks remained top-heavy with 20 issues accounting for 59.8% of the buyback activity. Additionally, for the fourth quarter in a row, none of the issues made the top 20 historical list for largest stock buybacks.  

On a sector basis, S&P Indices said Information Technology remains the dominant player in the buyback field, accounting for 29.3% of all buybacks with Consumer Staples accounting for 19.3%. Both Telecommunications and Utilities were the only sectors to reduce their first quarter buyback expenditures.   

Exxon Mobil, the long-term buyback leader, slightly increased its first quarter buyback activity ($2.50 billion from $2.37 billion), but remains 68.2% below its expenditures from a year ago ($7.85 billion). International Business Machinery spent the most on share buybacks during the first quarter ($4.02 billion), increasing its year-over-year quarterly repurchases by 128% (from $1.77 billion).