It seems totally hip to buy back your own shares. What to think about it?
The companies had a combined debt of nearly $6 trillion in 2015, which rose to $8,311 billion last year. Now – 2022 – there is a drop, to 8150 billion dollars. That so much debt was repaid is remarkable because at the same time record amounts of dividends were paid and companies bought back many of their own shares. To do so, companies took on large amounts of debt that cost almost nothing because of the extremely low interest rates. For example, Dutch chip company NXP borrowed $4 billion to make its shareholders happy with that money: it bought back its own shares. As a result, total corporate debt increased. But because the amount of cash on the company’s balance sheets increased even faster, there is a decrease on a net basis.
Back from never gone
Own share buybacks seem to be back (of never really gone).
Aegon will buy back shares for €106 million. from 7 July 2022; this is a supplement to a package of DKK 300 million. EUR already announced on March 23, 2022. prose has already bought back its own shares for approx. €10 billion since the start of its listing. aperam announced a further share buyback (up to €100m) in early May 2022, on top of a share buyback program the company already announced in February 2022 (and completed in April).
Simultaneously with the publication of the preliminary annual figures, PostNL a share buyback program. With this, the company says that it wants to neutralize the fall in earnings per share in the period 2021-2023. The company will buy back ordinary shares worth approximately €250 million spread over 2022 and 2023. According to the company, this is possible due to its strong financial position.
In the financial sector too, buying back one’s own shares seems totally hip.
It has always been an American thing: banks buying back their own shares. But with the presentations of generally very solid figures for 2021, the European institutions now also fell over each other with the most beautiful announcements. Not least because the prospects are rapidly improving. By 2022, more than a third of profit sharing is expected to come from buyback programs, thanks in part to the billions that institutions such as BBVA, Intesa Sanpaolo, UniCredit, Nordea, Deutsche Bank and UBS have set aside for their shareholders. Also NN participates quickly: Partly thanks to the sale of the asset manager NNIP, the insurance company finds it opportune to buy back its own shares for DKK 1 billion. EUR.
As usual, NN will buy shares for €250 million. – last year’s program is 94% complete – from 1 March. But now an additional program of €750 million has been added, which should be completed by the end of February next year. And also ABN AMRO treats its shareholders with a €500 million buyback program.
And despite jaded supporters and opponents, there is no guiding strategic-economic assessment perspective. That’s an omission given the – increasing – size.
First, the assessment of two types of “excess cash” distributions: share buybacks versus dividend distributions. The dividend policy says something about confidence in the future, and especially in the ability to realize future cash flows with a strategic focus that can continue to support a (generous) distribution.
My thoughts on shares in such companies: ” buy ‘. This also applies to companies where the argument is that dividend payments resist the temptation to use unused cash for ‘hit and run’ investments – especially takeovers – especially if there is express confidence that an appeal to the capital market will be made in the event of unexpected opportunities (i.e. issuing shares and critical assessment of the capital market is possible about this).
(to be continued)
through Leo van de Voort . He is a board advisor at Fuel for Living Strategies, former director of corporate finance Kempen & Co and author of the book Windows on value.