BOSTON — Companies are using extra cash built up during the recession to repurchase stock, moves that are likely to please investors who see the value of their shares rise.
But the buyback surge might not please President Barack Obama, who is urging companies to instead use surplus cash to hire more workers, hoping to generate jobs to sustain the economic recovery.
Standard & Poor’s reported Monday that stock repurchases by S&P 500 companies more than doubled to $79.6 billion in the July-to-September period from $34.9 billion in last year’s third quarter.
It was the fifth consecutive quarter of increasing buyback activity among the 500 largest publicly traded companies, many of them with substantial cash holdings built up during and after the recession that officially ended in mid-2009.
Stock buybacks indicate companies have enough cash to take their shares off the market, which increases the value of investors’ remaining shares and boosts per-share earnings results.
Buyback growth in the latest quarter “marks the full return of corporate participation in the equity markets,” said S&P analyst Howard Silverblatt. “While we do not expect a return to the 2005-2007 buyback bonanza, we do see this as a strong, positive sign for the overall health of the market.”
However, stock repurchases aren’t rebounding as rapidly as they were earlier. The latest quarter’s buyback figure is up just 3 percent from the second quarter’s total of $77.6 billion. That is a significant slowdown from double-digit percentage increases in each of the preceding four quarter-to-quarter comparisons.
Obama met at the White House last week with 20 CEOs, urging corporate America to shake loose $1.9 trillion in untapped cash and create more jobs by hiring and investing in their businesses. Obama is trying to cut a national unemployment rate that rose to 9.8 percent in November and is slowing the broader economic recovery.
Many companies are reluctant to take cash off the sidelines, fearing consumer demand for the goods and services they provide is still too meager to support more hiring or capital spending. Companies also are reluctant to spend until the outlook for new government regulations becomes more clear. The latter worry could ease because of last week’s congressional agreement to keep in place Bush-era tax rates.
When companies build up cash from rising profits, their options include hiring more workers, investing in capital spending or acquisitions, buying back stock, and raising dividends paid to shareholders. Many companies have been opting for the latter two, which please shareholders.
Much of the recent buyback surge has been driven by technology companies, which fared better than most corporations through the recession because they entered it with relatively little debt, and have seen demand for their products hold up.
In the latest quarter, infor mation technology companies including Microsoft Corp., Hewlett-Packard Co. and IBM Corp. made up nearly 29 percent of all buybacks, up from 27 percent in the second quarter.
