Buybacks Could Boost 2013 Performance
John is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
As of this writing, eleven trading days are remaining in the calendar year, including an abbreviated market session on December 24. The final months of 2012 have been historic in an undesirable way as market participants are more reliant on policymakers in Washington than during any period in recent history. We encountered a similar situation during the debt ceiling debacle of summer 2011, but that event did not have the permanence of the current policy debate on taxation and spending. Although many, including myself, are bewildered at the lack of progress in our nation’s capital, I do not believe we will have a sell-off similar to the one that took place following the initial TARP vote failure on September 29, 2008.
The topic of the impending fiscal cliff has prompted discussion on special dividends and stock buybacks in recent weeks. If you were hoping for a special dividend from a particular company and haven’t received an announcement yet, unfortunately I have bad news.
Special dividends are behind us
Today is the last day for the announcement of any dividend that is payable in calendar year 2012. Here’s why. SEC Rule 10b-17 requires issuers to notify their exchange 10 days prior to the record date for a dividend. Assuming a payable date of December 31 and a record date of December 24, the issuer would have to notify the NYSE or Nasdaq exchange as of today.
All is not lost, however. While Fool readers should consider investing in companies with a history of dividend growth, stock buybacks can also deliver value to investors. Share repurchases are accretive to earnings by reducing the float, or number of shares, being traded on the market.
Biggest S&P buybacks for 2013
In particular, there are four companies with strong fundamentals that also have the largest share repurchase plans in the entire S&P 500 index. The group consists of a tobacco giant, a money center bank, a global restaurant operator, and America’s favorite company. There’s something here for everyone, given the level of diversity.
Here are four stocks with large buybacks I’ll be watching in 2013.
Phillip Morris International (NYSE: PM). This international tobacco giant has the largest buyback in the S&P 500 index, having announced a massive share repurchase plan of $18 billion dollars. With a current market capitalization of $148 billion, the announced buyback represents more than 10% of the company’s total value. Only 5% of the buyback has been completed thus far. Phillip Morris operates strictly outside the United States, as its former parent company Altria decided to separate the mature US market from the growth opportunity in emerging markets.
JPMorgan Chase (NYSE: JPM). The global financial services institution lead by Wall Street’s most respected CEO, James Dimon, has announced a $15 billion share repurchase plan. With a market capitalization of $162 billion, management will be able to buyback nearly 10% of the company’s outstanding shares based on current market prices. Less than $1.5 billion of the repurchase plan has been completed thus far. JPMorgan Chase is regarded as one of the more conservative banks on Wall Street, and it managed to navigate through the financial crisis much better than nearly all its peers.
McDonald’s (NYSE: MCD). The world’s largest publicly-traded restaurant operator has announced a $10 billion dollar share repurchase plan. With a market capitalization of $90 billion, the share buyback represents more than 10% of the company’s total value. Management has completed only $400 million of the repurchase plan thus far. After reporting a disappointing comparable sales number in October, McDonald’s recently surprised the Street by significantly beating expectations in November.
Apple (NASDAQ: AAPL). The iconic American technology and consumer products giant has announced a $10 billion dollar buyback plan. As the world’s largest organization with a market capitalization of $500 billion, management will only be able to repurchase 2% of the company’s shares based on current market prices. Apple hasn't begun the share repurchase plan as of now. I previously wrote that Apple has been a victim of tax selling during late 2012, and the supply/demand dynamic for the company’s stock should reset in the new year. Expectations are also high for Apple’s Q1 FY2013 earning’s release in January.
Foolish bottom line
It’s important for readers to keep in mind that share repurchases represent only a single factor when considering investment in a company. There could be a multitude of reasons for management to initiate a stock buyback plan, and the underlying factors may not be obvious to shareholders. However, in the case of the above S&P 500 companies with strong fundamentals, it should be smooth sailing for calendar year 2013.
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johnmacris has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, JPMorgan Chase & Co., and McDonald's. Motley Fool newsletter services recommend Apple and McDonald's. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!