3 Cash Rich Companies Choosing Stock Repurchases Rather Than Dividend Hikes - Part VIII

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Includes: AVGO, NPBC, STZ
by: The Value Investor

This week, I will run you through the most important buyback announcements for the week of 2 April till 6 April.

While consumers and governments across the world are strapped for cash, corporations have plenty. Rather than signal long-term trust and pay more generous long-term oriented dividends, many of them have adopted share repurchases to buy back their own stock. Investors welcome these announcements as they boost earnings per share and provide a lot of support for the share price during the repurchase periods.

Constellation Brands (STZ) announced a new $1 billion repurchase program, sufficient to retire some 23% of its outstanding shares. The wine company initiated the program after the company announced disappointing full year results on Thursday prompting shares to fall 12.5% on the last trading day of the week. The announcement may be somewhat comforting for its shareholders who currently do not receive a dividend and have been impacted by the dramatic price move over the last week.

Avago Technologies (AVGO) announced its intention to repurchase 15 million shares, enough to retire 6.1% of its outstanding shares. The $560 million repurchase plan which is initiated by the developer and supplier of analog semiconductor devices has been decided upon after shares trade around all time highs. On top of the repurchases shareholders receive some 1.4% annual dividend yield

National Penn Bancshares (NPBC) announced that its board of directors have authorized a 7.5 million share repurchase program, some $70 million at its current share price level. The plan allows the company to retire some 5.0% of its outstanding shares which pleases investors who have not seen a very strong recovery in their holdings, opposed to many other bank stocks. The plan comes on top of the 3.1% annual dividend yield which investors currently receive per annum.

During the last week, these three companies described above announced repurchase plans totaling $1.6 billion, which makes this week a really quiet week in terms of buyback activity.

Cash-rich companies still refuse to significantly raise long-term dividends. Rather, they use one-time repurchase agreements with far less signaling power as a dispersion tool of excess cash to their shareholders.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.