Stock buyback activity picks up but still far off 2007 high

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Like others who were afraid to buy stocks when prices were low early last year, American companies are ramping up stock buybacks just as share prices zoom.

Share repurchases by Standard & Poor’s 500 companies totaled $47.8 billion in the fourth quarter, up 37% from the third quarter. It was the third straight quarterly increase but still far off the peak levels of two years earlier, according to S&P.

For all of last year, companies repurchased $138 billion in stock, down from $340 billion in 2008 and the record $589 billion in 2007.

To put that in perspective, the S&P index’s market value fell 35% from 2007 to 2009, while the companies’ collective earnings were down 24%, according to S&P. But buyback activity skidded 77%.

Over the last decade, buybacks have been a key component of bull markets. Fewer shares outstanding translate to higher per-share profits, which tends to push up stock prices.

But it remains to be seen how big a driver share repurchases will be in the near future.

Companies haven’t shown anywhere near the same vigor for buybacks as in past years, according to S&P. Indeed, much of the recent buying has come from companies repurchasing shares to offset stock options being exercised by employees after the market’s recent advance.

Companies do, however, have plenty of cash that could be used to repurchase shares. And more than 50 companies had ‘notable’ reductions in overall share count in the fourth quarter, S&P said.

That could be a step toward more companies getting in on the action.

-- Walter Hamilton