Toyota to Continue Big Share Buyback for Years

by: kaye
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World's top auto maker Toyota Motor Corp. may continue spending $2 billion or more a year to buy back its own shares for another 6-7 years. This was contrary to widely held views it was winding down the practice.

 

For many investors, who assumed Japan's most-profitable company would pay attention instead on rewarding shareholders by paying higher dividends, that is good news.

 

Such premise initiated from President Katsuaki Watanabe's comment a year ago. He stated that Toyota would aim to increase its group-based dividend ratio to 30 percent as soon as possible in consonance with healthy Western companies. That was the first time he had set a target for the ratio, which was 23.4 percent last business year.

 

The policy has seemed a mess for a company as visible as Toyota.

 

An official in the company's investor relations department said that they probably have not been doing a good enough job in communicating their position. The official said that the dividend policy is much simpler but they intend to continue the share buybacks not just to balance supply and demand in the market as many people might believe.

 

In 1997, Toyota started buying back its own shares from the market to bolster their value. In the early part of this decade, the buybacks flooded when Toyota absorbed securities from Japan's debt-riddled banks, which were removing shares to shore up their finances.

 

Those lenders are now healthy because the stock sales have run their course. Several market analysts forecasted that Toyota would have little reason to continue such aggressive buybacks.

 

The Japanese company said the buybacks were one way to hold its return on equity (ROE), a measure of how well a company uses its funds, higher than 10 percent. The ROE is now established above that as it reached 13 percent last year. But Toyota says it will pursue the buybacks, without specifying an amount or a timeline.

 

Last week, Toyota shareholders affirmed the reacquisition of up to 30 million shares or 250 billion yen ($2.04 billion) over the next 12 months. Toyota budgeted 200 billion yen a year earlier to buy back up to 30 million shares.

 

Kurt Sanger, Macquarie Securities' auto analyst who expects big buybacks even as Toyota nears a 30 percent dividend payout ratio, said the latest pledge exceeded their expectations. He continued that consensus on forecasts are down playing Toyota's earnings (per share) because they are not taking into consideration the buyback plans.

 

Sanger had forecasted buybacks summing 230 billion yen over the next three years. Now, he has lifted that to 750 billion yen.

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About the Author

Kaye Leery is has a degree in Information Technology.  She enjoys her profession as an IT consultant. She is also passionate about writing and plans to pursue a Creative Writing workshop in Iowa.

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