Don't Buy Alongside The Bristol-Myers Buyback

| About: Bristol-Myers Squibb (BMY)

After the close on Tuesday, Bristol-Myers Squibb (NYSE:BMY) announced a headline grabbing additional $3 billion share-repurchase program. With a market cap approaching $60 billion, investors quickly gravitated to the potential for a repurchase of 5% of the outstanding shares.

Not so fast! Further details in the announcement indicate that the last $3 billion repurchase plan hasn't even been completed in the two years since its announcement in May 2010. Not to mention research indicates that the net buyback will be significantly lower due to large amounts of stock options.

Figure 1 below highlights the actual net payout yields (net buyback + dividend) for the last five quarters. Not as appetizing as originally presented by the headline grabbing number.

Figure 1: Bristol-Myers' Net Payout Yield

Click to enlarge

All things being equal, a company with a 3.8% dividend yield and a decent yearly buyback is more attractive than treasury bonds. However, potential does exist to find stocks with net payout yields significantly higher than the 5% yield presently offered by the valuation of Bristol-Myers.

This article from early June highlighted the top 10 yielding stocks in the market at the time. Note how the yields are all triple what Bristol-Myers offers.

Figure 2: Top 10 Net Payout Yield Stocks For June

Company Buyback Yield (%) Dividend Yield (%) NPY (%)
Goldman Sachs 24.94 1.99 26.93
Kohls 21.71 2.88 23.17
ConocoPhillips 17.22 5.15 22.37
Northrop Grumman 15.40 3.81 19.21
DirecTV 18.88 0.00 18.88
Gap 16.02 1.99 18.01
Limited Brands 15.60 2.34 17.94
Time Warner 13.86 3.09 16.95
Amgen 14.18 2.12 16.30
Ameriprise Financial 13.26 3.03 16.29
Click to enlarge

Conclusion

A huge issue with this company is that analysts expect no growth in the next five years with earnings dropping in both 2012 and 2013, all while the stock is trading at 17 times forward earnings. Valuation is the key to higher yields, and this company is tapped out on the high side.

Investors originally attracted to the combination of a nice dividend and a solid buyback should instead look at Kohls (NYSE:KSS), ConocoPhillips (NYSE:COP), or Northrop Grumman (NYSE:NOC). All three stocks offer a similar dividend plus a significantly higher buyback than that provided by Bristol-Myers.

Disclosure: I am long COP, KSS.

Disclaimer: Please consult your financial advisor before making any investment decisions.