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$736 Billion, the Cost of Treasury Stock for 23 Issues

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May 23, 2012 – Comments (1)

What Cost $736 Billion and is on the Balance Sheet?

 

How much of owner’s cash have the issues in the Dow Jones Industrial Average exchanged for treasury shares?  23 out of 30 issues display the cost for treasury stock on the balance sheet.  While 16 out of 30 issues display the number of treasury shares held on the balance sheet.  It is unclear why the figures are not uniformly reported.

What is the cost of the treasury stock for the 23 issues that make an easy disclosure?

 

$736,445 million.

 

Here are the details. Issue and treasury stock cost in millions.

AA $3,898

BA $16,364

CAT $10,164

CVX $30,701

DD $6,627

DIS $30,325

GE $31,315

HD $6,694

IBM $114,020

JNJ $20,317

JPM $11,201

KFT $7,337

KO $32,364

MCD $28,982

MMM $11,794

PFE $33,519

PG $69,918

T $22,460

TRV $18,241

UTX $19,400

VZ $4,735

XOM $182,165

MRK $23,804 

       Total (millions)   $736,445        

Keep in mind if any treasury shares have been retired it would not be reflected in the cost of treasury shares.  And the cost of repurchasing shares by 7 DJIA firms are not shown.

  

How large is the $736 billion cost of treasury stock sitting on the balance sheets?

It is $2,232 per capita, assuming the population is 330 million.

 

Think share repurchase return cash to owners?

Try this in a small group of 10.  Use a sheet of paper to represent 1 share of stock.  Pass out shares, and ask the owner to raise the share in one hand.  All 10 can do it, right?

Now exchange cash for 1 share  Then ask the owners raise a share in one hand and the cash in the other hand.  How many can do it?  No one. The 9 owners have a share but no cash.  The former owner has cash but no share.

Now pay a cash dividend.  Then ask the owners to raise the share in one hand and cash in the other hand.  How many can't do it?  The 9 owners, right?

Question for the CFA Institute:

Explain why some of its members suggest share repurchase programs provide cash to owners. Then explain how owners get the cash.

 

 

 

 

 

 

 

1 Comments – Post Your Own

#1) On May 23, 2012 at 12:09 PM, chk999 (99.98) wrote:

Share buybacks are a tax efficient way to return cash to shareholders. The 10th shareholder now has cash, not a share. The other nine will see the EPS go up by 10/9ths next year. If the company had done a dividend, all 10 would have had to pay taxes on it. As it was, only the 10th pays taxes on his capital gains and the other 9 pay no taxes, because you don't pay taxes on unrealized capital gains.

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