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!
Dividends are in fashion with investors right now, and that’s always a good thing. After all, 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… Read More
IMPERIAL OIL $40.32 (Toronto symbol IMO; Shares outstanding: 869.7 million; Market cap: $35.1 billion; SI Rating: Average) is Canada’s largest integrated oil company. Imperial also operates 2,000 retail gas stations under the “Esso” banner.
In the three months ended September 30, 2008, earnings per share rose… Read More
IMPERIAL OIL $55.04 (Toronto symbol IMO; SI Rating: Average) is Canada’s largest integrated oil company. Imperial also operates 2,000 retail gas stations under the “Esso” banner. ExxonMobil Corp. owns 69.6% of Imperial’s stock.
In the three months ended March 31, 2008, earnings per share fell 6.2%,… Read More
Imperial Oil has gone way up for us, although we think it still has appeal. Even so, our advice is to maintain 15% to 25% exposure to the Resources sector — resist the urge to invest much more in this volatile sector. As well, combine… Read More
THE DUN & BRADSTREET CORP. $83 (New York symbol DNB; Conservative Growth Portfolio, Finance sector; Shares outstanding: 56.6 million; Market cap: $4.7 billion; WSSF Rating: Average) focuses on credit reports for individual companies, not bonds or asset-backed securities, so it’s less exposed to the problems… Read More
These three credit rating companies make money by providing investors with information that will help them make better decisions. However, big writedowns of securities backed by subprime mortgages in the past few months have hurt the liquidity of old bonds as well as demand for… Read More
TRANSALTA CORP. $32 ( Toronto symbol TA; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 201.4 million; Market cap: $6.4 billion; SI Rating: Average) owns 50 unregulated power plants in North America and Australia.
In late 2006, the company closed the coal mine that supplied its plant… Read More
Falling interest rates have rekindled investor interest in high-yielding utility stocks, such as these five. All of them have a long history of increasing dividends. Unlike interest payments on bonds, dividends qualify for the dividend tax credit. As well, stocks offer you open-ended returns, so… Read More
It was an unsettling week, but the market ended up in the middle of the range it has stayed in since its January 21 plunge. No one can predict these things consistently, but I still think we are much closer to a bottom than a.. Read More
AASTRA TECHNOLOGIES $30.71 (Toronto symbol AAH; SI Rating: Speculative) (905-760-4200; www.aastra.com; Shares outstanding: 16.0 million; Market cap: $491.8 million) develops and markets products and systems for accessing communication networks, including the Internet.
Aastra’s products include residential and business telephone terminals, screen telephones capable of accessing Internet… 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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