S&P 500 companies are increasing spend into stock buybacks to keep the share price up and the investors smiling. Recently, S&P 500 companies went in for stock repurchase which in the Q1 was up by 63 per cent touching $89.8 billion compared to the $55.3 billion during the same period a year ago.
The mainly reason why S&P 500 companies are going in for stock repurchase is to shore up share value. Senior analysts said that this trend of buying back stock is a pointer that these companies are cash rich and removing shares from the stock market had a two pronged effect. First it would enhance the value of the shares which are still being traded and secondly it would in turn reflect positively on the earning per share.
In the meanwhile, the cash surplus that S&P 500 companies are holding is growing. This has been seen in the earnings released by companies for the last 10 quarters. In Q1 of 2011, S&P 500 companies were holding $963 billion in cash.
The increase of stock buyback has shown a 4 per cent in the Q1 of this year compared to the last quarter of 2010. A point of remember at this point, is that equity prices went up by 8per cent which means that the S&P 500 companies were picking less stock while the cash outflow was more for buyback. Another view is that the reason for spend on stock buyback was to curb employee share options and the stock which was allocated for reinvestment in dividend payouts.
According to data from S&P, the number of S&P 500 companies which are into stock repurchase has shown a growth. In the Q1 more than 300 companies on the S&P 500 indice invested in share buyback as against the 270 in the Q4 of last year, 261 in Q3, 257 in the Q2 and 251 in Q1 of 2010.