More companies buy back shares, pay dividends a year into pandemic

From WSJ: U.S. businesses, many of them no longer facing cash-flow woes, are returning more capital to shareholders.

Companies are spending more money on dividends and share repurchases after pausing or shrinking them last spring in an effort to preserve cash during the coronavirus pandemic.

Executives are boosting these shareholder rewards as they are growing more optimistic about the economic recovery and the outlook for their business. The U.S. economy is expected to grow by 6.4% this year, with Covid-19 vaccinations and stimulus funds prompting a surge in consumer spending.

Many companies are generating significantly more revenue than a year ago, leading some of them to reduce the cash piles they amassed during the onset of the crisis. Industrial conglomerate Johnson Controls International PLC and retailer Kohl’s Corp. , among others, in recent weeks increased their dividends and planned more share repurchases.

Companies in the S&P 500 increased their dividends by an average 11.1% during the first quarter, compared with 9% during the first quarter of 2020 and 8.8% in the 2019 period, according to S&P Dow Jones Indices, a unit of S&P Global Inc.

The companies paid out cash dividends averaging $14.68 per share for the quarter ended March 31, up from an average of $14.32 during the previous three quarters. Average dividends per share last year fell as low as $13.97 during the quarter ended Sept. 30.

Of the 70 S&P 500 companies that provided information about buybacks through April 22, 50 bought back shares. That is higher than during the past three quarters, when an average of 40 of the firms acquired their own stock. But the current count is still lower than during the first quarter of 2020, when 58 of the 70 repurchased shares.

Johnson Controls in March authorized $4 billion in buybacks on top of an existing authorization for $2 billion in stock purchases and raised its annual dividend to $1.08 per share from $1.04. The Cork, Ireland-based company said it is confident its operating performance will continue to generate strong cash flow.

Kohl’s in February reinstated its dividend and in March announced plans to resume share buybacks after suspending both last spring. The Menomonee Falls, Wis.-based department-store chain took a close look at its financial position when it made the decision, Chief Financial Officer Jill Timm said.

Ms. Timm and other finance chiefs face a balancing act when they allocate corporate cash toward buybacks or dividends as opposed to capital investments or acquisitions. They want to reward shareholders, while also not overstraining their companies’ finances. Buying back shares when stock markets are high can be costly and having to cut the dividend can scare off investors.

“The company is trying to establish its dividend at a rate that the company can manage and grow over time,” Ms. Timm said. Kohl’s set its dividend at $0.25 per share, compared with $0.70 before the suspension. The firm reported cash and cash equivalents of $2.27 billion for the year ended Jan. 30, up from $723 million the previous year.

WD-40, a San Diego-based maker of maintenance and household-cleaning products, in March raised its quarterly dividend by more than 7%, to 72 cents a share. “We felt that it was appropriate to raise our dividend, as we have for over 10 years,” CFO Jay Rembolt said, adding that the company feels less uncertain about its outlook.

Still, it doesn’t plan to buy back shares anytime soon, Mr. Rembolt said. The company last spring suspended an existing share repurchase program, which expired in August.

Repurchasing SharesBuybacks by U.S. companies soared after the2017 Tax Cuts and Jobs Act, which made itmore attractive to repatriate overseas profits.Dollar amount of shares repurchased by S&P500 companies.
S&P 500 companies last year spent $519.69 billion on repurchases, down 28.7% from the previous year, according to S&P Dow Jones. Those companies paid $483.18 billion in dividends in 2020, down 0.5%.
Buybacks hit record highs in 2018 and 2019 after the 2017 Tax Cuts and Jobs Act made it more attractive for companies to repatriate overseas profits. Many firms used those to purchase their own stock.
Worthington Industries Inc., a Columbus, Ohio-based metals manufacturer, in March raised its quarterly dividend by 3 cents a share to 28 cents a share and authorized a buyback of as many as 5.6 million shares on top of 4.4 million it had remaining from a previous authorization. The company last year didn’t repurchase shares during the quarter ended May 31. Between then and Feb. 28, it repurchased more than 3.3 million shares.
“Our results are good and our balance sheet is pretty good,” CFO Joseph Hayek said. “And ironically, if you buy back shares, you end up paying less in dividends because you have fewer shares.” Worthington has about 53 million shares in circulation.
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