A re stock buybacks a waste of investor money?

Stock buybacks are corporate givebacks to shareholders, since the reduced supply of available shares can boost a stock’s price.

Nowadays it’s looking like Christmas in February, as U.S. companies are announcing share buybacks with a fervor not seen in years, according to research from Birinyi Associates Inc.

Halfway through the month, the $69 billion worth of buyback authorizations – a promise to buy, but not an obligation – is making this the third-best February for buybacks since 1999. The only better Februaries were in 2007, at $88 billion, and 2011, at $78 billion.

But investors should question the timing of these moves. Corporate executives seemingly would have better instincts, but,  like individual stock investors they tend to buy the most at the top. Research shows that buybacks are often announced when management is highly confident — not when the company stock is perceived as undervalued. Moreover, executive compensation is frequently tied to stock price, and a thinner supply of shares outstanding benefits management.

Not least, a stock buyback uses money that could be paid out in dividends. Given the choice, shareholders might well prefer cash in hand instead of relying on the market’s invisible hand.

Here are the largest buyback authorizations so far in February: