Australia’s largest companies are set to return a record $3.6 billion to investors this month through share buybacks. This reflects a trend towards more conservative spending and a decrease in major merger and acquisition activity. The new buyback announcements from 18 of the S&P/ASX 300 Index’s leading companies more than double the $2.8 billion returned by 10 companies at the same time last year, according to data from MST Marquee. News Corp, the Murdoch family-controlled publishing and broadcasting conglomerate, spearheaded the buyback activity with $1.5 billion, followed by Telstra’s $1 billion and gaming giant Light & Wonder’s $758 million. News Corp is a global media and information services company. Telstra is Australia’s largest telecommunications company.
According to Jason Kururangi, a portfolio manager at Milford, share buybacks are generally viewed as a good capital management tool, provided companies do not overextend their balance sheets to fund them. MST Marquee senior analyst Hasan Tevfik noted that the record number of new buybacks was a highlight of the recent reporting period. Buybacks occur when a company repurchases its shares from existing shareholders. This reduces the number of shares outstanding and can boost returns by spreading profits across fewer shares.
The increase in buyback activity coincides with a modest dip in dividends. Peter Gardner of Plato Asset Management estimates that September dividends from the local benchmark’s largest 200 companies are down 2 per cent year-on-year to $34 billion, primarily due to cuts from resource giants like Fortescue, BHP, Rio Tinto and Woodside. Overall, however, dividend payments have risen, with 64 per cent of companies increasing them, 15 per cent maintaining them, and 21 per cent reducing them. Gold companies, including Evolution Mining and Northern Star, showed notable increases in dividend payouts.
MST estimates that companies on the ASX 200 will have paid $91 billion in dividends this year, with Commonwealth Bank and BHP leading the way. This shift towards buybacks is also linked to increased pressure from shareholders. The ‘two strikes rule’, introduced in 2011, has made boards more vulnerable to facing a spill if shareholder discontent grows. Companies that received a strike saw their stock prices fall, making a buyback an effective method to boost share prices.
