Burbs: Feeling flush, companies buy their stock

Stock buybacks are sweeping corporate America, and the northern suburbs are no exception.

Yesterday Provident Bancorp Inc. of Montebello, the parent company of Provident Bank, announced it would begin its second stock repurchase program this year. Provident bought 2.3 million shares of stock in a program announced in January, and now plans to buy up to another 2.2 million, or about 5 percent of common stock outstanding.

Provident is the seventh major company based in the northern suburbs to announce a buyback program in the last six months. The others are U.S.B. Holding Co. Inc. of Orangeburg, the parent of Union State Bank (300,000 shares); Reader's Digest Association Inc. of Chappaqua (100 million shares); Pepsi Bottling Group Inc. of Somers (25 million shares); Gabelli Asset Management Inc. of Rye (400,000 shares); Hudson Valley Holding Corp. of Yonkers, the parent of Hudson Valley Bank (two buybacks totalling 150,000 shares); and the champion of them all, IBM Corp. of Armonk (5 billion).

IBM spent $3.15 billion in the first quarter of this year on its own stock, said Howard Silverblatt, a market equity analyst for Standard & Poor's. It's not alone, he said.

The amount of money spent on buybacks at S&P 500 companies last year reached $197 billion, up 50 percent from 2003. This year is likely to set another record, Silverblatt expects; in the first quarter, buybacks reached more than $63 billion, up 47 percent year over year.

"We've got record numbers, no matter how you calculate it," he said.

Buybacks traditionally are portrayed as ways to boost share value. It's simple math; reduce the total number of shares outstanding, and company profits per share will be larger. The logic works, of course, with the proviso that the company is buying back shares that are priced at less than what the company believes they are worth.

Companies that rely on stock options to boost employee compensation may also find themselves under pressure to buy shares back on the open market. If they create additional shares to allow managers to exercise options, the additional shares will dilute the overall value of the outstanding shares.

Josh Peters, editor of Morningstar DividendInvestor, is unimpressed with buybacks as a way to create shareholder value. He would rather see businesses start paying dividends, or increase their size if they already do.

Some companies are reluctant to boost the size of their dividend if they are unsure they can continue to pay that much in future quarters, however, so buybacks are viewed as a safer way to raise share value, he said.

One thing is certain, Silverblatt said. Companies have more money than ever to spend in a variety of ways, and investors want a bigger share of the pie.

As of Thursday, the 376 industrial companies in the S&P 500 were sitting on $632 billion in cash and cash equivalents, an all-time record, he said. By comparison, at the end of 1999 the amount of cash and equivalents stood at $260 billion.

Companies that are flush with cash often go on a buying binge, gobbling other companies. But that hasn't been the case in the past year, Silverblatt said. While there has been some pickup in mergers and acquisitions, the amount is not as big as in previous years and none of the announced deals has been competed.

Pepsi Bottling Group shareholders re-elected the following people to the Somers-based company's board of directors: Linda G. Alvarado, Barry H. Beracha, John T. Cahill, Ira D. Hall, Thomas H. Kean, Susan D. Kronick,Blythe J. McGarvie, Margaret D. Moore, John A. Quelch, Rogelio Rebolledo and Clay G. Small.

Barr Pharmaceuticals Inc. of Pomona said the Food and Drug Administration has approved its application to make and market a generic version of Pfizer's Demulen oral contraceptive. Barr will introduce the generic under the name Kelnor. It will compete in a market with annual estimated sales of $52 million.

What are people saying about mortgages today:

Rates on 30-year mortgages edged down last week to a seven-month low. Mortgage-giant Freddie Mac reported Thursday that 30-year, fixed-rate mortgages fell to 6.3 percent, down slightly from 6.31 percent two weeks ago. It put rates at the lowest level since they were at 6.24 percent the first week of March.

Bank of Hawaii, Central Pacific Bank, Territorial Savings Bank and Wells Fargo Home Mortgages all cut their 30-year mortgage rates to 5.75 percent this week.

Most people think of a mortgage as a means to an end. After all, you buy a house, not a home loan. But a mortgage is much more than the path to homeownership. It is a financial instrument that must be managed, just like any other financial investment.