Check Your Inbox, Shareholder. Wal-Mart and Honeywell Are Sending Gifts

  • Buybacks, spinoffs have become popular in this bull market
  • Tuesday’s announcements see mixed reaction in stock prices

Several of the country’s biggest companies are in giving mode. Are their gifts worth getting?

Wal-Mart Stores Inc., the biggest U.S. retailer, announced plans Tuesday to spend $20 billion repurchasing stock, a sum equal to 8 percent of its market capitalization. Also intended to bolster shareholder value, Honeywell International Inc. said it will spin off its automotive-turbocharger and household-systems businesses. Pfizer Inc. is considering offloading its consumer-health division in a sale that could fetch $17 billion.

While sometimes dismissed as financial engineering, buybacks and spinoffs remain popular channels for appeasing shareholders. Since the bull market began in 2009, corporate America has snapped up more than $3 trillion of their own stocks, an amount that dwarfs any other buyer. Spinoffs are also on the rise, with 42 completed annually since 2012, up from an average 34 since 1985, data compiled by Spin-Off Research show.  

The strategy has worked, with spinoff companies and those offering the largest buybacks both outperforming the market in the past 8 1/2 years. Doubts are growing on repurchases as stocks trade near the highest valuations relative to earnings since the dot-com era.

The S&P 500 Buyback Index is up 11 percent this year, trailing the 14 percent gain in the broad equity benchmark. The Bloomberg U.S. Spin-Off Index has done better, jumping 28 percent.

Investors showed mixed reactions to Tuesday’s announcement. Wal-Mart’s buybacks, along with its forecast for a surge in online sales, were hailed as gestures of confidence in its push to fend off competition from Amazon.com Inc. The stock jumped as much as 5.2 percent, the most since May 2016.

Honeywell fell as much as 2.4 percent before recovering. The spinoff plan is part of Chief Executive Officer Darius Adamczyk’s vision to simplify the business mix at a company that sells everything from cockpit controls, jet engines, work boots to thermostats and home-security systems.

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