Intel (INTC) stock has been suffering recently, so it appears management thought a 25% increase in its dividend and a $25 billion share repurchase program would help. So, should investors be happy?
Well, INTC stock now yields 1.6% per year, comparable to the S&P 500 index. Decent, but hardly something to get excited about, especially given Intel’s margins and balance sheet position are much better than the typical S&P company.
How about the increased buyback program? Upon perusing their press release, I find it entertaining that they took time in it to brag that since 1990 they have bought back 2.5 billion shares for $49 billion. They seem to think this is a good thing and shareholders should be impressed by that.
By my math, $49 billion divided by 2.5 billion shares come to $19.60 per share. Intel’s current stock price is around $25, so basically their ROI on their buyback, since inception, totals 25 percent. That’s 25 percent over a 15 year period! Average annual ROI? Less than 2% per year. If investors are impressed that their company has invested a whopping $49 billion over the last decade and a half at an interest rate of less than 2%, they should reassess the situation.
It’s true that investors who bought the stock in 1990 have done amazingly well, but don’t think for a second that it is in any way due to their stock buybacks. In fact, had they not wasted that $49 billion, I bet the stock would have done even better.
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good post. i’d also be interested to know the share count in 1990 vs 2005, i.e. did the 2.5B buyback reduce # of shares or merely compensate for stock option issuance?
Share counts I found after a quick peruse of the INTC web site:
1992: 6,872,000,000
2001: 6,879,000,000
2004: 6,494,000,000
Not surprisingly, the buyback has accelerated in recent years, which is reducing share count, as opposed to keeping it steady.