These days, most corporations indulge in stock buybacks. A buyback – or, “share repurchase” – is exactly what it sounds like. Executives decide to use corporate money to buy back shares of stock, rather than investing that money in expanding the business, or using the money to pay back debt, or spending the money on employees.
So far this year, Verizon has spent more than $5 billion (with a “B”) buying back shares of its own stock. But what has that money actually bought?
The theory is that stock buybacks raise share prices. The theory is that if there are fewer shares, investors will be willing to pay more for them.
But as Verizon’s stock history shows, that only works in the short term. The artificial stock-price-boost doesn’t seem to last very long.
For instance, the $5 billion buyback Verizon announced this past February. This particular buyback was both announced and mostly completed within days. Verizon’s per-share price increased from $47.86 on February 5th (the day the buyback was announced) to $49.81 on February 11th. But the next day, share prices started falling again. By March 10th, the per-share price was even lower than it had been before the buyback.
And after the past few weeks’ stock market decline, Verizon stock is now trading at about 5% less than it was on March 10th.
So, what did that $5 billion buy?
The sad truth: as far as I can tell, it didn’t buy Verizon much of anything in the long run. Investors who sold their Verizon stock on February 11th probably made some money. Otherwise, at least from my perspective, it was all just “money down the drain.”
The real tragedy is: that money could have been used for so many other things. It could have been used to
…expand their business. Verizon even turned down $568 million in federal funding that would have subsidized the expansion of their broadband network.
…maintain their corporate assets. Millions of customers rely on Verizon’s copper landlines, and pay hundreds of dollars each year for service – yet Verizon spends remarkably little to maintain the network.
…fund fair contracts with its labor unions. Yes, Verizon is engaged in yet another contract standoff with its unions, because the corporation wants to cut shift and overtime differentials, job security and employee benefits. And executives have been preparing for this fight for more than a year now: according to a corporate press release, “Verizon took extensive measures to ensure its customers would not be impacted by any potential work stoppage. Thousands of non-union Verizon employees and business partners have undergone extensive training in various network and customer service functions.”
…change corporate practices that have resulted in more than $100 million in penalties from the Federal Communications Commission. $90 million for illegal billing. $7.4 million for consumer privacy. $5 million for rural call completion problems. $3.4 million for 911 outages. (And that’s just within the past year.)
It’s all about choices.
And Verizon executives have chosen to spend more than $5 billion buying back corporate stock.
Providing – as far as I can tell – no long-term benefit whatsoever to the corporation. (Although, yes, investors who sell their shares immediately following a stock buyback do benefit.)
Here’s the thing that bothers me, even more:
Since the 2009 “end” of the Great Recession, corporations have spent more than $2.4 trillion on stock buybacks.
…Money that did not go toward job creation.
…Money that did not go toward business expansion.
…Money that did not go toward paying down corporate debt.
…Money that did not go toward improving wages, benefits or working conditions for employees.
…Money that – as far as I can tell – provided no long-term benefits whatsoever to the corporations that spent it.
Money that – as far as I can tell – just went “down the drain.”
Like that $5 billion for Verizon buybacks, back in February.
H/T to economist William Lazonick. Read his “Profits without Prosperity” here.
Tens of thousands of Verizon employees have been working without a contract for more than a month. Read more here.
This post is just the first in a series. Part two, showing how Verizon executives benefited from the $5 billion buyback, is here.
Part three, looking at the disconnect between Verizon’s reported profits and the dividends it pays its stockholders, is here.
Part four, about phantom stock and how Verizon executives are avoiding taxes by investing in imaginary assets, is here.
Part five, about how Verizon is borrowing money to pay stockholders and executives while demanding givebacks from unions, is here.
Part six calculates that — because of all that borrowing — each share of Verizon stock now represents less than $3 in stockholder equity (even while it’s trading at more than $40 a share); read it here.
And there will be more. Please check back.