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!
In the late 1990s, phone companies spent heavily upgrading their networks to handle Internet traffic. But they over-estimated the growth of the Internet, and these costs weighed on their earnings for several years. Despite the setbacks, these three well-managed telecoms kept paying above-average dividends.
Their network… Read More
ALCOA INC. $38.03, New York symbol AA, has offered to buy smaller Canadian rival Alcan Inc. (New York symbol AL) for roughly $27 billion in cash and stock. The combined company would be the world’s largest aluminum producer, accounting for 20% of global output and… Read More
ANHEUSER-BUSCH COMPANIES INC. $51.16, New York symbol BUD, gained nearly $2 on rumors it is thinking about merging with European brewer InBev. A merger would create the world’s largest brewer, and undoubtedly run into anti-trust problems in several countries. It would also take years of… Read More
The apparel industry is typically more risky than other segments of the Consumer Goods & Services sector, such as fast food outlets and beverage makers. It takes months to design and make clothes, so it’s hard to respond to changing fashion trends.
That’s why it pays… Read More
LIMITED BRANDS INC. $29 (New York symbol LTD; Aggressive Growth Portfolio, Consumer sector; WSSF Rating: Average) operates about 3,600 stores under three main retail chains: Limited Brands (20% of revenue) sells men’s and women’s casual clothing; Victoria’s Secret (50%) sells lingerie; and Bath & Body… Read More
SNAP-ON INC. $44 (New York symbol SNA; Conservative Growth Portfolio, Manufacturing & Industry sector; WSSF Rating: Average) makes and distributes hand tools to automotive mechanics, mainly through a fleet of franchised vans that visit garages. This business supplies about 45% of its revenue.
The company also… Read More
These three well-managed industrial companies have come under pressure in the past few months, as rising costs for fuel, metals, plastics and labor have slowed their earnings growth.
But they own some of the best-known brands in their fields, and they are all doing a good… Read More
GREAT-WEST LIFECO INC. $28 (Toronto symbol GWO; Conservative Growth Portfolio, Finance sector; SI Rating: Above average) is one of Canada’s largest insurance companies, with $191.3 billion in assets under administration. It sells its insurance products directly and through brokers to both individuals and groups. Power… Read More
Holding companies tend to trade for less than the value of their various pieces (‘holding company discount’). Still, despite the apparent bargain, we only recommend the holding company over its subsidiaries when we have a high opinion of all the subsidiaries. A good example is… Read More
HARTE-HANKS, INC. $26 (New York symbol HHS; Aggressive Growth Portfolio, Consumer sector; WSSF Rating: Average) helps companies identify and target potential customers, and works with them to develop an advertising strategy. Direct marketing provides roughly 60% of its revenue, and just over half its profit… 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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