It says the money will be used to reduce debt, finance investments, and buy back shares.
The company expects to continue to buy back shares consistent with its repurchase authorization.
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Therefore, companies say to themselves, why not use this free cash to buy back shares?
And some companies have announced plans to buy back shares, as a way to improve that return.
Blomquist called Martin Cohen, whose pattern had been to buy back shares when they fell below a 5% discount.
But for many struggling indebted companies, to buy back shares would be unwise.
Some companies can buy back shares and still have a net increase in shares due to the issuance of shares via options.
Corporate borrowing rates are at cyclical lows, increasing the incentive for companies to buy back shares and for private-equity groups to launch takeovers.
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Mr Fama and Mr French find no evidence that companies stop paying dividends (or do not start) because they can buy back shares instead.
Money sitting unused creates opportunity costs, so boards typically want to use it to clear high interest debt, to buy back shares, to make acquisitions, or to increase dividends.
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Activist shareholders want Home Depot to leverage up the balance sheet far more and buy back shares, or sell the real estate or spin off the HD Supply wholesale business.
Sometimes it may be best for companies to hoard cash at the top of the stock-market cycle and use it in the next trough to buy back shares at a discount.
In addition, just over 1, 000 companies have said that they intend to buy back shares or, at least, that they have changed their company rules to allow them to do so.
Activist shareholders want Home Depot to leverage up the balance sheet far more and buy back shares, or sell the real estate or spin off the hd Supply wholesale business (see table).
In a statement, JPMorgan CEO Jamie Dimon said he was pleased that the bank would continue to raise its dividend and buy back shares, and he predicted continued growth for the bank.
It does take a stretch to believe they will continue buy back shares next year as fundamentals improve, so the per share valuation metrics noted above would only benefit from such actions.
There is another benefit for companies that buy back shares: they are likely to be able to raise equity finance later more cheaply, say Matthew Billett and Hui Xue from the University of Iowa.
Borrowing money to buy back shares and pay dividends shows that Apple and others prefer to tap the debt markets at historically cheap rates rather than bring cash back from overseas, which can incur taxes.
If the tax rate changes, some worry fewer companies will follow the lead of those like Apple, which initiated a quarterly dividend this year, or Cisco Systems, which recently hiked its payout by 75%, opting instead to buy back shares.
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As we often note in such a circumstance, the company is not really required to devote any amount of resources to buy back shares, but if it feels it is in the best interest of shareholders (because the stock is too cheap) Kellogg has the ability to support its stock.
If the opportunity arose for Berkshire to be able to buy back shares below its book value, some cash would be used up, thereby reducing assets, but each remaining shareholder would represent a slightly greater ownership percentage of the company and the intrinsic value of the remaining shares would climb.
After all, a mutual fund is always required to buy back your shares but no one is required to buy back your individual bond.
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If an investor is able to sell their shares prior to a stock offering being announced and buy back their shares after the offering has been announced, in theory, they can juice their returns.
Assuming the possibility that the short-seller's bearishness is unwarranted--which is a lot of the time--the seller, seeking to avoid losses on shares sold short, must re-enter the market in order to buy back the shares at a loss so that they can be returned.
Companies may have to buy back their shares from the market to award them to executives.
The rally in banks was especially forceful as short-sellers scrambled to buy back borrowed shares.
Of course, managers could always buy back their shares given the growing discount to net asset value.
There, too, however, supervisors are scrutinising business plans and are allowing only selected banks to pay dividends or buy back their shares.
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