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Buybacks Headed for Third Biggest Year as S&P 500 Plunges, Valuations Fall

U.S. companies are authorizing share repurchase plans at a rate that may make 2011 the third biggest year for buybacks since at least 1985, according to Birinyi Associates Inc.

There were $36 billion in repurchases approved last month, bringing the total this year to $324 billion, Rob Leiphart, an analyst at the Westport, Connecticut-based research firm, wrote in a note today. Should the rate hold up, 2011 would end with $554 billion. Only 2006 and 2007 had more, with $655 billion and $863 billion authorized, Birinyi data show.

Chief executive officers have more money than ever after boosting cash for 10 straight quarters to $963.3 billion, Standard & Poor’s data show. With stocks down 14 percent from their April 2011 high, companies may be more inclined to repurchase shares than return money through dividends, he said.

“Corporate America has a lot of money,” Leiphart said in a telephone interview. “Buybacks offer the ultimate in flexibility in that you can deploy capital and you aren’t restrained going forward.”

The price-to-earnings ratio for the S&P 500 has plunged as the index dropped during the past 13 days. The benchmark gauge for U.S. equities trades at 12.8 times earnings, 22 percent below its 16.4 average since 1954, data compiled by Bloomberg show. That’s the lowest point since March 2009, when the bull market began.

The $324 billion in authorizations this year compares with $222 billion at the end of July last year, Birinyi data show. U.S. companies have executed 74 percent of all the buyback programs they have authorized since 1985, according to Birinyi.

To contact the reporter on this story: Whitney Kisling in New York at wkisling@bloomberg.net;

To contact the editor responsible for this story: Michael P. Regan at mregan12@bloomberg.net.

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