Most companies talk a good game when it comes to promoting their futures. But some companies do a better job than others in putting their money where their mouths are. By using stock-buyback programs, companies put spare cash to work, rewarding investors by supporting their share prices and reducing the amount of stock outstanding. That in turn can boost earnings and send the stock even higher, creating a virtuous cycle of prosperity for investors.
Here are the four stocks in the Dow Jones Industrials that have bought back the most stock over the past year, according to S&P Capital IQ.
ExxonMobil , $21.1 billion in stock buybacks
Buying back stock is nothing new for ExxonMobil, which has spent more than $200 billion over the past 10 years on share repurchases. Over that period, it has cut its share count by a whopping 35%, from 7 billion shares down to 4.5 billion. Some experts argue that it could have avoided stagnant production levels by reinvesting more money into its business, but what Exxon has done with its capital has produced strong returns on capital of 25%, well above its peers. Investors have to be happy with 12% annual returns the stock has provided over the past decade.
Johnson & Johnson , $12.9 billion
Health-care giant J&J appears at No. 2 on this list, but it does so for a special reason: When it acquired medical-device maker Synthes, it structured the transaction in such a way as to include shares it had just issued in connection with the acquisition. Historically, J&J hasn't been nearly as good about stock buybacks, instead preferring dividends as its method of returning capital to shareholders.
AT&T , $12.8 billion
AT&T is a cash-flow giant, thanks to the subscription revenue it earns from its wireless network. Despite having to make huge capital expenditures, the company has more than enough left over after servicing its debt to return to shareholders, both in the form of dividends and through stock buybacks. Just last week, AT&T authorized a buyback of another 300 million shares, worth more than $11 billion at current prices. Yet it also raised its dividend by a penny per share, boosting its yield to almost 5%.
IBM , $12 billion
For IBM, buybacks are a very conscious piece of an overall corporate strategy. A few years ago, the tech giant set a goal of reaching earnings per share of $20 by 2015. To reach that goal, IBM clearly needs to boost its net income. But it is also very deliberately buying back stock to reduce its share count, making it that much easier to reach its goal. In fact, over the years, the company has borrowed money from time to time to reduce share count, and with low borrowing costs now, that strategy could be instrumental in getting IBM to $20 per share in earnings in the next two years.
Should you be bullish?
With the exception of J&J, these companies have been pretty consistent about buying shares in good times and bad. That's better than many opportunistic buybacks, which tend to happen only when shares are expensive. Buybacks don't mean the stocks will go up, but they do show that company management thinks they're a good deal for their money.
J&J may not be a regular buyback giant, but it does have a well-diversified health-care business that leads its industry. To learn whether the stock is a good buy, check out the Fool's new premium report outlining the Johnson & Johnson story in terms that any investor can understand. Claim your copy by clicking here now.
The article These Dow Stocks Are Bullish on Themselves originally appeared on Fool.com.
Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter: @DanCaplinger. The Motley Fool recommends and owns shares of IBM and Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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