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The writer is a long term value investor (over 10 years experience) seeking both value in long and short ideas. Besides stock positions, the writer likes to work with options to enhance the risk/return profile of the ideas. Disclaimer: This article provides opinions and information, but does not... More
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  • Cash Rich Companies Choosing Stock Repurchases Rather Than Dividend Hikes - Part XXII 0 comments
    Jul 16, 2012 9:58 PM | about stocks: APKT, GPI, KGJI

    This week, I will run you through the most important buyback announcements for the week of July 9nd till July 13th of 2012, which turned out to be a very quiet week in terms of buyback activity.

    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.

    Kingold Jewelry (KGJI) the designer and manufacturer of gold jewelry in China has announced a $10 million share repurchase program. The program is sufficient to retire approximately 12.5% of Kingold's shares outstanding. Kingold will finance the plan with its current cash balances. CEO Hi Hong Jia commented on the share repurchase: "The company recently contemplated a secondary offering to help accelerate our growth, but given the decrease in our share price after the announcement of the offering, our management and Board determined that this was not in the best interest of the company or its shareholders." Shares have returned 33% year to date, trading Friday at $1.52 per share. Shares peaked around $2.50 in May and June, but given up 40% in recent weeks.

    Acme Packet (APKT) the provider of session delivery network solutions announced a $200 million share repurchase program. The program is sufficient to retire approximately 18.0% of Acme's shares outstanding. The company is taking advantage of a significant decline in its share price. Shares which traded as high as $80 per share in April 2011 have fallen 80% ever since to $16 per share. Shares of Acme rose 3% after the announcement this week, as the buyback signals trust of management in the business. The company ended its first quarter with $376 million in cash and equivalents and operates without any debt.

    Group 1 Automotive (GPI) the operator of automotive dealerships and collision centers announced a $50 million share repurchase program. The program is sufficient to retire 4.4% of Group 1's outstanding shares. The new program will replace any amount remaining under the current authorization and by June the 30th. Operating cash flows from Group 1's operations will provide the necessary funds for the repurchases and the company expects to hold the shares in Treasury, rather than cancel them. As such they remain readily available for sale again, if deemed necessary. So far in 2012 shares have traded within the $45-$60 trading range marking year to date losses of 4%.

    During the last holiday week, repurchase activity dropped to very low levels, as many corporations did not schedule any announcements for the week. Total announced deal size came in just at $250 million, making it a rather inactive 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.

    Themes: quick-picks-lists Stocks: APKT, GPI, KGJI
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