Efforts to protect the bottom line at U.S. corporations have resulted in a reduction in the two most common ways to enhance shareholders' value: dividends and share repurchases.
But, as the economy recovers, so will these benefits.
"Buybacks have become few and far between, falling out of favor with most investors as corporations continue to build up cash reserves to ride them through, and out of, the recession," said Howard Silverblatt of Standard & Poor's.
He points out that share repurchases -- a way to enhance value by reducing the number of shares of stock outstanding -- have fallen back to their lowest level since the first quarter of 1998. In the second quarter of this year -- the most recent accounting period -- only 169 companies executed stock buybacks, compared to 288 during the same period a year ago.
Dividends, a more immediate benefit to shareholders, have also been reduced -- but not at the same pace as buybacks.
"At the height of the buyback bonanza in 2007, companies spent 180 percent more on stock repurchases than they did on dividends. Now, even after dividend expenditures have decreased 22 percent, buyback spending is just half that of dividends.
Standard & Poor's expects "buybacks to remain weak for the foreseeable future, even as earnings are expected to improve," said Silverblatt.
At least one San Diego company sees it to be an attractive time to purchase its shares and, hopefully, improve the value of the outstanding stock.
Illumina, a genetics technology company, announced in November that its board of directors has approved a new stock repurchase plan of up to $100 million. The action will be funded from existing cash balances.
"Considering the strength of our balance sheet and our prospects for continued strong cash generation from our operations, this repurchase program is an effective means to return value to our shareholders," said President and CEO Jay Flatley.
The company also recently completed a $75 million repurchase program that had been approved by Illumina directors in August.
The move puts Illumina in good company with some of the largest U.S. companies. Hewlett-Packard (NYSE: HPQ), which has operations in San Diego County employing about 4,000 workers, has spend $4.3 billion of share repurchases in the past three quarters and still has more than $13 billion in cash available for future buybacks or increased dividends.
And General Dynamics (NYSE: GD) has approved the buyback of 10 million shares, reducing it outstanding stock to 375 million shares.
Wal-mart (NYSE: WMT), the world's biggest retailer, has also been active buying back company stock. In June, the board of directors approved a repurchase program for $15 billion.
"We remain committed to returning value to our shareholders through share repurchases and dividends. During the last five years, Walmart has repurchased approximately $21 billion worth of its shares," said CEO Mike Duke.
The retailer has also used its cash to raise the dividend paid to shareholders, something it has done every year since going public in 1974. Walmart will pay more than $4.2 billion in the form of dividends during its fiscal year 2010.
As corporate earnings increase and cash balances rise, more and more investors in the new year could see bigger dividends as well as more cash going toward share repurchases. Either way, the potential for enhanced returns seems promising.
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