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!
BANK OF AMERICA CORP. $44.37, New York symbol BAC, has moved down lately along with most financial services stocks, mainly due to concerns over liquidity problems with securities backed by mortgages and other assets. That makes it difficult to assess the market value of these… Read More
PHILIPS ELECTRONICS N.V. ADRs $41 (New York symbol PHG; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 1.1 billion; Market cap: $45.1 billion; WSSF Rating: Average) continues to sell smaller investments to free up cash for its core medical equipment, lighting and consumer electronics… Read More
WASHINGTON MUTUAL INC. $29.09, New York symbol WM, earned $0.23 a share in the third quarter of 2007, down 70.1% from $0.77 a year earlier. The drop came from a nearly 500% increase in loan loss provisions, mainly due to weakness in the housing market… Read More
IMPERIAL OIL $48 (Toronto symbol IMO; SI Rating: Average) is Canada’s largest integrated oil company, with operations in all phases of the petroleum industry.
In the three months ended June 30, 2007, Imperial’s earnings fell 14.9%, to $712 million or $0.76 a share, from $837 million… Read More
NCR CORP. $49.77, New York symbol NCR, has fixed the terms of its planned spin-off of subsidiary Teradata Corp. NCR stockholders will receive a special dividend of one Teradata common share for each NCR share they own. The dividend is a tax-free distribution. NCR stockholders… Read More
DOW JONES & CO. INC. $58.21, New York symbol DJ, plans to merge with News Corp., now that enough members of the Bancroft family, which controls 64% of the company’s votes through Class B multiple voting shares, have agreed to accept News Corp.’s $60.00-a-share takeover… Read More
NVIDIA CORP. $44 (Nasdaq symbol NVDA; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 362.9 million; Market cap: $16.0 billion; WSSF Rating: Average) makes graphic chips for computers, video game players and cellphones. These chips make games run smoother, and video images appear more… Read More
Autodesk and Nvidia had to restate their reported earnings for the past few years to correct errors related to the timing of executive stock options. Fixing these accounting errors is a plus, but both stocks face some business uncertainty.
AUTODESK INC. $44 (Nasdaq symbol ADSK; Aggressive… Read More
ALCOA INC. $47.35, New York symbol AA, jumped 10% after losing out in its attempt to buy Canadian aluminum producer Alcan Inc. Anglo-Australian mining company Rio Tinto Ltd. agreed to buy Alcan for $101 a share in cash. The Rio offer is about one third… Read More
AT&T INC. $40 (New York symbol T; Income Portfolio, Utilities sector; Shares outstanding: 6.2 billion; Market cap: $248.0 billion; WSSF Rating: Average) provides telecommunication services to over 65.4 million customers in 22 states.
In December 2006, AT&T bought rival phone company BellSouth Corp. for $66.8 billion… 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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We do not collect or disclose personal information, except when it is provided to us voluntarily by the site/store visitor with their consent.
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We are continuously in the process of improving our sites and services. If any new features or policies require a change to this current policy, we will post a clear notice of this change on pages of our site where the privacy policy appears. The principle behind this privacy policy is to collect information with your knowledge and consent.
What personal information do we collect?
The information we receive from customers helps us personalize and continually improve your online experience at TSI Network. TSI Network may collect personal information online for all legal purposes, which include, but are not limited to:
Information You Give Us: We receive and store any information you enter on our website or give us in any other way through sign-up forms or ordering forms for publications and services. You can choose not to provide certain information, but then you might not be able to take advantage of many of our services and features. We use the information that you provide for such purposes as responding to your requests, customizing your web browsing experience for you, improving our website, and communicating with you.
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Does TSI Network Use the Information It Receives?
"Contact Us" and Comment Features: TSI Network encourages visitors to its websites to contact us with questions and comments. Email addresses and other information of persons using these features may be collected in order to facilitate our responses to those inquiries.
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Changes to this Policy
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Legal Notices and Disclaimers
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