Look out for more U.S. corporate buybacks in 2021

Yahoo Finance’s Brian Sozzi, Myles Udland, and Julie Hyman discuss corporate stock buybacks.

Video Transcript

MYLES UDLAND: Hi. Welcome back to Yahoo Finance Live. We've been talking a lot this morning about what's happening in stocks that are heavily shorted. We might call that an ownership based fundamental part of analyzing a stock. Another quasi fundamental part of analyzing a stock is how much of a company stock that company is buying back at any one time. And Brian Sozzi, we have seen a return of share repurchases in this market, after many companies froze them during that cash crunch in the spring. But during the last bull run, during the 2010s, share buybacks, of course, got a lot of attention as a big driver of returns.

BRIAN SOZZI: Right, and this [INAUDIBLE] of the stock buyback in 2021, Myles and Julie, this started to gain a little momentum about a week and a half ago, two weeks ago, when the banks reported their earnings. At JP Morgan, the signal, it will return to buying back stock in the first quarter. And since those earnings reports, the number of companies signaling the return of stock buybacks, that has increased. Yet UBS, obviously another bank, out this morning, announcing a new $4.5 billion stock buyback plan.

Procter & Gamble, last week raised its stock buyback plan to $10 billion from a range of 7 to 9 billion dollars. Kimberly-Clark yesterday, they came out and reported earnings. Another strong quarter. They're benefiting selling a lot of tissues and paper goods during the pandemic. Announced a new $5 billion stock buyback plan.

And then how can we forget last week. Netflix comes out, blows it out of the water on earnings, sales, subscribers, you name it. They said they are now, quote, exploring buying back stock, like they did from 2007 to 2011. And I think what John Mueller said-- he is the Vice Chairman and CFO of Procter Gamble-- what he responded to me, when I asked him, why are you buying back stock again? I think is a theme you're going to hear as many more companies report earning season. But here's what Mueller told me last week.

JOHN MUELLER: The strength of the entire income statement from sales to earnings and then the cash flow through that's occurring, I mentioned 113% free cash flow productivity in the quarter. So we are raising our share repurchase commitment up to $10 billion, combined with $8 billion in dividends. That'll be an $18 billion return to share owners this fiscal year, which is about 125% of earnings. We feel great about that.

BRIAN SOZZI: And perhaps one of the most important points there by my Mueller here guys, it's free cash flow. Companies have done really major restructurings throughout the pandemic, to the point where even if their sales are not growing or growing slightly, they're in good free cash flow position. To the point where they can now take that cash, go back out, and buy back a lot of stock.

Now Julie, Myles, that does raise the question, is this another indication of a stock market top? Because look where a lot of these companies are going to be going out there buying back this stock. In many cases, darn near record highs.

MYLES UDLAND: It'll make me dust off my old Warren Buffett posts about why he loves share repurchases so much, because it's the most efficient way to return capital to shareholders also. Also, I mean, to be honest folks, the last thing that created a market top was a global pandemic. So I think if we keep talking about a market top, we're just going to keep talking in circles about a thing that is not going to happen unless, I guess, we get another global pandemic. I don't know. I don't think us saying it is certainly going to manifest it, to be [INAUDIBLE] we've seen on that front.