Stock buybacks, also known as share buybacks, are when a company purchases outstanding shares of its own stock on the open market. Share buybacks typically raise the value of a given stock holding. Stock buyback programs also 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 more for a stock with higher earnings per share. The funny thing is that, just as investors tend to underestimate the value of a buyback, they overestimate the value of a dividend reinvestment program. They put a high value on the fact that they can reinvest their dividends automatically, without paying brokerage commissions. They fail to recognize that brokerage commissions are now at historic lows. They also overlook the fact that they have to pay taxes on the full dividend each year they receive it, even if they reinvest it. That tax hit and the loss of an opportunity for tax-deferred compounding greatly outweigh what they save on brokerage commissions.
Don’t get us wrong-cash dividends are a definite plus-buy don’t overlook stock buybacks. Stock buyback can be huge win for investors. And you can make even bigger gains in the market by following TSI Network and using our three-part Successful Investor strategy:
Discover how to put an extra strength in your portfolio with our specific advice on how to identify high-quality dividend stocks. It’s all in our newly updated report, Dividend Paying Stocks: How High Dividend Stocks Can Supercharge Your Income Investing. And it’s yours FREE!
It’s odd that while investors crave cash dividends, they rarely get excited about stock buybacks. But in some ways, buybacks (or share repurchases) are almost as good as dividends. Stock buybacks have three major advantages:
First, stock buybacks raise a company’s earnings per share. To get… Read More
Dun & Bradstreet Corp has now raised its dividend for the tenth-straight year. New acquisitions and strong demand for its cloud-based services should lift its revenue after a decline in 2015.
DUN & BRADSTREET CORP. (New York symbol DNB; www.dnb.com) is the world’s largest… Read More
Wise investors value dividends, but many investors don’t realize that company share buyback programs can be just as valuable as dividends, and in some cases, more so.
It’s odd that while investors typically crave cash dividends, they rarely get excited about company share… Read More
Every Wednesday, we publish our “Investor Toolkit” series on TSI Network. Whether you’re a beginning or experienced investor, these weekly updates are designed to give you advice on specific investment topics. Each Investor Toolkit update gives you a fundamental piece of investing strategy, and shows… Read More
CANADIAN TIRE CORP., $89.56, Toronto symbol CTC.A, rose 6% this week after the company reported better-than-expected earnings.
In the three months ended June 29, 2013, Canadian Tire’s earnings rose 15.9%, to $154.9 million from $133.7 million a year earlier. Earnings per share rose 17.2%, to $1.91… Read More
BELLATRIX EXPLORATION, $7.16, symbol BXE on Toronto, continues to enter into joint ventures to speed up the development of its Cardium shale oil deposits in west-central Alberta.
Under the latest agreement, Bellatrix will sell a 50% interest in its producing wells in the Ferrier and Willesden… Read More
Slowing industrial activity in North America and China has pushed down oil demand. At the same time, rising shale oil production from North Dakota’s Bakken region has increased inventories. Both of these factors have weighed on prices. Low prices are a mixed blessing for these… Read More
FIRSTSERVICE CORP., $32.12, symbol FSV on Toronto, serves the following areas of the real estate market: commercial real estate, residential property management and property improvement.
In the three months ended December 31, 2012, the company’s revenue rose 6.3%, to $632.5 million from $594.9 million a.. Read More
GREAT-WEST LIFECO INC., $27.11, Toronto symbol GWO, has agreed to buy Irish Life Group Ltd., Ireland’s largest pension manager and life insurance provider. The company has over 1 million clients and $50 billion of assets under management.
The government of Ireland purchased Irish Life in June… Read More
Dividends are in fashion with investors right now, and that’s always a good thing. Creative accounting can produce false impressions of prosperity and hide embarrassing financial problems. But accounting can’t create cash for this year’s dividend, let alone conjure up a history of past dividends… 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.
How to Invest In Stocks Guide: Find 10 factors that make your investments safer and stronger.
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