Are Massive Stock Buybacks Signaling a Market Crash?

Many companies are buying back huge amounts of their stock. Why that could point to a market top.

Feb 9, 2014 at 10:43AM

Recently, many big corporations have taken their ample cash reserves and used them to make huge repurchases of their shares, with 3M (NYSE:MMM) having joined the bandwagon with a $12 billion buyback that will represent 14% of its total market capitalization. But many investors worry that companies have terrible timing with buybacks, suggesting that rises in buyback activity could point to a top in the market.

In the following video, Dan Caplinger, The Motley Fool's director of investment planning, talks about the buyback phenomenon and how NVIDIA (NASDAQ:NVDA), Halliburton (NYSE:HAL), and Viacom (NASDAQ:VIAB) have made similarly large buybacks in comparison to their respective market caps. But Dan notes that historically, companies haven't made buybacks when their share prices were at their lowest, instead spending the most during bull markets. With 3M trading near all-time record highs, Dan suggests that you should be careful with stocks with big buybacks.

The other shareholder-friendly move great companies make
One thing 3M has going for it is that in addition to its big buyback, it also pays solid dividends. In fact, one of the dirty secrets that few finance professionals will openly admit is the fact that dividend stocks as a group handily outperform their non-dividend paying brethren. But which dividend stocks are the best? Our top analysts put together a free list of nine high-yielding stocks that should be in every income investor's portfolio. To learn the identity of these stocks instantly and for free, all you have to do is click here now.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends 3M, Halliburton, and NVIDIA. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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