After being in the spotlight for reporting lackluster first quarter fiscal 2014 results, technology bellwether Apple Inc. (NASDAQ:AAPL) recently announced the repurchase of $14 billion of its shares in the two weeks following its earnings release. This share buyback was part of its previously announced $50 billion repurchase plan.
Apple’s CEO Tim Cook admitted that the repurchase was an “opportunistic” move, surprised as he was by the plunge in the company’s shares following the release. Apple shares slumped in the wake of lower-than-expected holiday iPhone sales, which impacted fiscal first quarter results.
Though Tim Cook was being “aggressive” in buying the shares of its own company, the move was not appreciated in certain quarters. There were people who thought that the cash could have been better utilized for driving growth at the company or for a new product launch.
However, its seems that the majority of people, including billionaire activist investor, Carl Icahn, appreciated Apple’s recent move – as reflected by a 1.4% rise in the company’s share price following the news. Carl has been goading the gadget-maker to return more wealth to its shareholders by boosting share repurchases, but he has seemingly given up on this plan for now.
Buybacks in Focus
The recent share repurchase by the company highlights the fact that more and more U.S. companies are increasingly spending on share repurchases to reward shareholders. In fact, the companies are buying back shares at a record pace.
As per S&P and Dow Jones indices, share repurchases increased to $128.2 billion during third quarter 2013, up 8.6% sequentially and 23.6% from the year-ago quarter.
The third quarter figure represents the highest level since the fourth quarter of 2007. Apple alone repurchased more than $40 billion of its shares in the last 12 months and was the biggest buyer in the third quarter of 2013.
This trend is expected to continue as U.S. companies are sitting on a pile of cash on their balance sheets. Also, buybacks have gained precedence over dividends as some believe that they can return more value to shareholders.
Moreover, buybacks are beneficial for the companies as well. They reduce the outstanding number of shares, thereby bolstering the earnings per share number (see 3 ETFs that Maximize Shareholder Value).
This strategy is expected to bode well for PowerShares Buyback ETF (NYSEARCA:PKW), which includes companies that have repurchased 5% or more of their common stock in the trailing 12 months. This fund might be an interesting pick for those who like the buyback idea, and we have highlighted the fund in greater detail below: