Companies Get Frugal

After binging on stock buybacks in recent years, the coronavirus shock has companies suddenly grasping for fiscal austerity.

While the layoffs and furloughs have already begun, companies are quickly  pulling back on stock repurchases. Since dividend payments are taxable, stock buybacks have become an increasingly popular way for companies to distribute their cash flow to shareholders without tax implications. By buying back their own stock, companies reduce their share counts and, therefore, the earnings available to each remaining share. That ultimately boosts stock prices. The absence of a tax bill makes shareholders particularly happy.

But no one is happy these days. On Tuesday, chip giant Intel became the latest company to suspend its buyback program. Just last October, Intel had agreed to spend $20 billion on buybacks over the next 18 months. The company has already spent $7.6 billion of those funds. Now the company says it has other priorities. From its filing with the SEC today: 

To date, Intel has kept its factories operational while safeguarding the health and safety of employees and continues to have a strong balance sheet. Intel’s management believes the suspension, while conservative, is prudent given uncertainty regarding the length and severity of the pandemic.

Intel says its dividend won't be affected by the new thinking. The stock currently yields 2.5%. 

Thus far, other companies suspending buybacks include Chevron, Nordstrom, AT&T, and most major banks. Barron's is tracking all of of the buyback and dividend changes here.