Share Buyback Bonanza

The S&P 500 index (SPX) has hit more than 50 record highs so far in 2021 due to the strong economic recovery from the pandemic lows. Cash holdings among S&P 500 companies recently topped $2 trillion. Corporate spending remains high as companies reinvest in their businesses to meet growing demand. At the same time, HI-quality companies with strong free cash flows reward investors through growing dividends and share repurchase programs.

Companies have authorized more than $680 billion in stock repurchases through July, a veritable share buyback bonanza! There is no need for investors to ride out to the Ponderosa searching for gold when share buybacks abound.

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If management teams repurchase shares below a conservative estimate of the company’s intrinsic value, then shareholder value is maximized as remaining investors own a higher percentage of a wonderful and growing business.

No one estimates intrinsic value better than Warren Buffett and Charlie Munger. The fact that Berkshire Hathaway’s (BRK-A) biggest investment during the first half of 2021 was the repurchase of $12.6 billion of Berkshire’s own shares is a strong indication that Buffett believed Berkshire’s stock was attractively valued for his remaining partners.

Apple (AAPL) is the big “Hoss” of the share buyback bonanza with its giant share repurchases totaling nearly $212 billion in the last three fiscal years. During the first nine months of fiscal 2021, Apple generated nearly $76.0 billion in free cash flow, up 39% from last year. Apple has returned $77.0 billion year-to-date to shareholders through dividends of $10.8 billion and share repurchases of $66.2 billion.

Microsoft’s (MSFT) free cash flow increased 24% during fiscal 2021 to $56.1 billion with the company paying $16.5 billion in dividends and repurchasing $27.4 billion of its common stock.

If you google Alphabet (GOOGL), you will find the company’s free cash flow more than doubled during the first half of 2021 to $29.7 billion with the company repurchasing about $24.2 billion of its common stock as part of its $50 billion share buyback authorization.

Facebook (FB) announced a friendly new $25 billion share buyback program. Free cash flow more than doubled during the first half of the year to $16.6 billion with the company repurchasing $11 billion of its common stock, including $7.1 billion in the second quarter.

Earlier this year, Oracle (ORCL) announced a $20 billion expansion of its share repurchase program and increased its divine dividend by 33%. During the past 10 years, Oracle has reduced its shares outstanding by more than 44% thanks to the company’s strong free cash flows and substantial share repurchases.

UPS (UPS) management views company cash as “belonging to shareowners” and aims to return 50% of earnings to shareholders through dividend payments. UPS deploys a disciplined and balanced approach to capital allocation, including a new $5 billion share buyback program.

Check Point Software (CHKP) announced a recent $2 billion share buyback expansion. Since the beginning of the firm’s share repurchase program, Check Point has repurchased approximately 188 million shares for a total purchase price of approximately $11.1 billion.

Most of our high-quality companies generate strong free cash flows including the “Little Joes” which also steadily reduce their share counts. While the dollar amounts may not make the Bonanza map, the buybacks still reward shareholders such as NVR’s recent $500 million share buyback authorization and Gentex’s (GNTX) 25 million share expansion of its ongoing share repurchase program.

Investors should tip their cowboy hats to managers of high-quality companies who buy back shares and maximize shareholder value.

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