Equity priced below historical valuations is helping fuel mergers and repurchases. The S&P 500 trades at 15.4 times reported earnings, compared with an average of 16.4 since 1954, data compiled by Bloomberg show. Based on analysts' forecast for 2011 profits, the index's price-earnings ratio is 13.6, according to the data.

The value of takeovers increased 35% in the first quarter from the same period in 2010, data compiled by Bloomberg show. Acquisition prices exceeded market value by 23% on average, the smallest premium since the third quarter of 2007. That's a sign to MFS Investment Management's James Swanson that deals haven't reached speculative levels.

"There's a lot more vigilance on the part of shareholders, institutions and hedge funds about companies paying too much for acquisitions," said Swanson, chief investment strategist at Boston-based MFS, which oversees about $230 billion. "Companies don't want to overpay."

Trailing Peers

While the stock market return for buyers in about half of the 100 biggest takeovers made between 2005 to 2008 trailed industry peers two years later, acquirers are seeing gains this year, data compiled by Bloomberg show.

DuPont Co. has advanced 8.7% since January 9, after it offered 39.3 billion kroner ($7.41 billion) in cash for Danisco A/S, a maker of enzymes used in biofuels. The deal would be the biggest since 1999 for the third-largest U.S. chemical maker, which had $6.8 billion in cash and short-term investments as of Dec. 31, the largest end-of-year figure since at least 1991.

S&P 500 companies have approved $149.8 billion in share repurchases in the past three months, exceeding the $125 billion for all of 2009 and the $108.3 billion announced during the first three months of 2010, data from Westport, Conn.-based Birinyi Associates show.

Companies reducing their shares outstanding are beating the market. The Share BuyBack Achievers Index, which tracks U.S. companies that have repurchased at least 5% of their stock in the past 12 months, has climbed 6.3% this year, exceeding the S&P 500's 4.5% gain.

Dividend Increases

ConocoPhillips has jumped 12% since February 11, when the third-largest U.S. oil company boosted its dividend and added $10 billion to its stock buyback plan. The S&P 500 has lost 1.2%. Chief Executive Officer Jim Mulva said last week in a meeting with analysts that he plans to increase the Houston-based company's dividend at least 10% each year.