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!
Amerigo Resources is a shining exception to almost all other penny stocks thanks to its stellar and lasting returns.
The firm has returned a stellar 225% gain to investors over the last 4 years. Compare that to the benchmark S&P Global Natural Resource index, up… Read More
TEXAS INSTRUMENTS INC., $209.88, Nasdaq symbol TXN, is still a buy for aggressive investors.
The company is a leading maker of analog chips. Its products convert inputs, like touch, sound and pressure, into electronic signals that computers can understand.
The stock hit a new all-time high of… Read More
Teck Resources now focuses on copper and zinc following the recent sale of its metallurgical coal mines in Western Canada. Metallurgical coal is a key ingredient for making steel.
We feel the move will benefit investors, as copper and zinc have a much brighter future than… Read More
YUM! BRANDS INC., $136.79, New York symbol YUM, is a buy for aggressive investors.
The company operates over 59,000 restaurants in more than 155 countries. Its main banners are KFC (fried chicken), Pizza Hut and Taco Bell (Mexican food). Franchisees now operate 98% of outlets.
Yum opened… Read More
CANADIAN NATIONAL RAILWAY CO., $155.73, Toronto symbol CNR, remains a buy for long-term gains.
CN operates Canada’s largest railway. Its 30,250-kilometre network stretches across the country. It also travels down through the U.S. Midwest, connecting Canada to the Gulf of Mexico.
The company last raised your quarterly dividend… Read More
BOSTON SCIENTIFIC CORP., $74.92, is a buy. The company (symbol BSX on New York) develops and markets medical devices used in minimally invasive procedures. Its products are used for angioplasty (blood vessel repair), blood clot filtration, cardiac rhythm management, catheter-aided ultrasound imaging, and many other surgical… Read More
CANADIAN NATIONAL RAILWAY CO., $159.60, Toronto symbol CNR, remains a buy for long-term gains.
CN operates Canada’s largest railway. Its 30,250-kilometre network stretches across the country. It also travels down through the U.S. Midwest, connecting Canada to the Gulf of Mexico.
The stock fell 4% this week after… Read More
The shares of insurance giant Manulife have jumped 30% in the past year. That’s largely because it sold some of its slower-growth assets and is using the cash to reward investors with more share buybacks and dividend increases. Higher interest rates have also boosted the… Read More
VISA INC. $254 is a buy. The company (New York symbol V; Conservative Growth Portfolio, Finance sector; Shares outstanding: 2.05 billion; Market cap: $520.7 billion; Price-to-sales ratio: 15.5; Dividend yield: 0.8%; TSINetwork Rating: Above Average; www.visa.comwww.visa.com) operates the world’s largest electronic-payments network. It processes credit, debit, prepaid and… Read More
On July 1, 2015, due to pressure from billionaire activist investor Carl Icahn, online auction firm eBay split off its electronic-payment business, PayPal, as a separate firm. Investors received one PayPal share for each eBay share they held.
After the spinoff, eBay rose from a low… Read More
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