A number of companies have recently announced major new share buyback programs. It's often a sign that management believes the stock is undervalued. A buyback does not always lead to a higher stock price, but it can benefit shareholders in a number of ways. Depending on the size and the timing, a share buyback can put a bid under the stock price. This can help add stability to the stock and could even help push it higher. It can also help to boost earnings in the future. When a company buys back stock, it reduces the number of shares outstanding which means that fewer shares will be used to calculate earnings in the future. For example, if a company buys back 10% of the shares outstanding, that would boost earnings by a similar amount. Also, when a company sees an increase in the earnings per share, it is also more likely to raise the dividend. For all these reasons, it makes sense to consider investing in stocks that are subject to a significant share buyback program. Here are a couple companies that recently announced significant buyback plans:
International Business Machines (IBM) offers a wide range of information technology services and products which include consulting, software, hardware, and more. Unlike many older tech companies, IBM has managed to stay relevant in the eyes of investors and it has shown revenue growth over the past few years. It has also rewarded investors with regular dividend increases and stock buybacks. IBM just announced a major increase in its buyback program which gives it a total value of about $11.7 billion. It even plans to consider raising it even more in April, 2013. IBM has already spent about $6 billion buying back shares in just the first half of 2012. That shows IBM is serious about following through with share repurchases. It also has a strong history of raising the dividend. The dividend was increased again in 2012, from 75 cents to 85 cents per share. This blue chip dividend stock looks like a solid value at just about 13 times earnings.
Here are some key points for IBM:
- Current share price: $193.43
- The 52 week range is $177.06 to $211.79
- Earnings estimates for 2012: $15.13 per share
- Earnings estimates for 2013: $16.64 per share
- Annual dividend: $3.40 per share which yields about 1.8%
Pfizer, Inc. (PFE) has been a top-performing dividend stock for the past couple of years. As one of the largest pharmaceutical companies in the world, it has a very defensive and stable business model. This makes it ideal for income investors who need higher than average yields while maintaining some relative safety. Pfizer owns multiple blockbuster drugs which have annual sales in excess of $1 billion. This includes Lipitor, Celebrex, Lyrica and others. It also has an animal health division which it plans to sell in the near future. This transaction should give the company billions of dollars which it plans to put towards share buybacks. Pfizer recently announced it would buy up to $10 billion worth of stock. It also has an impressive track record with dividends. This company has offered investors annual dividend increases since 2009, and with earnings estimates at nearly three times the size of the dividend payout, there is plenty of room for additional increases in the coming years.
Here are some key points for PFE:
- Current share price: $24.55
- The 52 week range is $18.15 to $26.09
- Earnings estimates for 2012: $2.17 per share
- Earnings estimates for 2013: $2.32 per share
- Annual dividend: 88 cents per share which yields 3.6%
Disclaimer: Data is sourced from Yahoo Finance. No guarantees or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.