Buybacks or stock buybacks are when a public company decides to purchase back its own shares, decreasing the number of available shares on the open market. Buybacks raise a company’s earnings per share. It’s simple arithmetic: buybacks reduce the number of shares outstanding.
To get earnings per share, you divide total earnings by the number of shares outstanding. When you reduce the divisor-because the company has fewer shares outstanding, due to stock buybacks-the calculation gives you a higher number for earnings per share. On the whole, buyers are willing to pay slightly more for a stock with slightly higher earnings per share. When you hold a stock in your personal, taxable account and it pays a cash dividend, you have to pay tax on the dividend in the year in which you receive it. When a company initiates a buyback program the dividend isn’t distributed (and subject to tax) but the share price tends to rise and boost investor returns. This added opportunity for tax deferral may not seem like much of an advantage in any single year.
However, the magic of compound interest applies to that tax deferral. It can add up to a huge advantage over a decade or two. The advantage expands all the more if you hold off on selling until you need the money. That holding period may even last until you retire, when your income tax rate is likely to be much lower. We think investors should be just as excited for buyback programs as dividends. Enhance your stock market returns by following TSI Network and using our three-part Successful Investor strategy:
Our new report, 10 Stocks to Buy and Hold Forever, identifies 10 stocks you can hold for the long term and shows you exactly how to profit from a portfolio that’s built to last. And it’s yours FREE!
MERCK & CO. INC., $98.05, is a buy. The drugmaker (symbol MRK on New York) is a pharmaceutical leader in oncology, acute-care and animal health drugs as well as vaccines.
Merck is now making a foray into the lucrative obesity market. The company has announced that… Read More
The U.S. Federal Reserve continues to cut its benchmark interest rate as inflation eases. That is letting these two banks cut their loan provisions, which is lifting their earnings. Lower rates should also help spur demand for new loans. That will give them even more… Read More
MONDELEZ INTERNATIONAL INC., $61.93, Nasdaq symbol MDLZ, is a buy.
The company makes cookies and crackers (Oreo, Ritz), chocolate bars (Cadbury, Toblerone), candy (Clorets, Sour Patch Kids) and Halls cough drops.
This week, Mondelez announced a new plan to buy back up to $9 billion of its common… Read More
CN’s shares are down about 18% from their recent peak of $181 in March 2024. That’s partly due to threats by U.S. President-elect Donald Trump to impose a 25% tariff on imports from Canada, which would hurt the company’s freight volumes. However, tariffs would also… Read More
Finning supplies Caterpillar heavy equipment and support services to resources companies, so its revenues tend to move up and down with commodity prices.
To offset that cyclical risk, the company typically signs long-term support contracts when it sells new equipment, which gives its predictable revenue streams… Read More
OVINTIV INC., $59.96, is a buy. The energy producer (Toronto symbol OVV; Shares outstanding: 260.3 million; Market cap: $16.2 billion; TSINetwork Rating: Average; Dividend yield: 2.7%) operates four core oil and gas properties: Montney (B.C.), Permian (Texas), Anadarko (Oklahoma) and Uinta (Utah).
Ovintiv recently agreed to acquire certain assets… Read More
Corteva offers you exposure to key agricultural growth areas given its leadership in the corn and soybean markets and its strong position in crop protection products. While those markets can be volatile due to weather and economic conditions, the company’s size, geographic and product diversification,… Read More
This industrial transformation story offers compelling value as the company completes its pivot from pipeline coatings to higher-margin plastics and electrical products. With $265M in recent divestitures strengthening its balance sheet, Mattr is well-positioned to execute its growth strategy.
A $150m modernization plan includes two new… Read More
In some ways, stock buybacks benefits are better than dividends. In particular, they give you a tax-deferral option that you don’t get with cash dividends.
It’s odd that while Successful Investors generally crave cash dividends, they rarely get excited about stock buybacks. But in some ways,… Read More
Shares of Fair Isaac have risen 120.0% for our subscribers over the last year—and a whopping 16,882.4% since we first recommended the stock in our February 1999 issue at $13.60 a share (split adjusted)! That said, we think the shares have room to move much higher.
The… Read More
Learn everything you need to know in 'The Canadian Guide on How to Invest in Stocks Successfully' FREE Special Report from The Successful Investor.
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