When companies choose to distribute profits to shareholders, they can do so in two ways: by doling out dividends, or by buying back their own stock, which increases investor earnings per share by decreasing the inventory on the open market. Each method of payout comes with its own shareholder benefits.
Beyond boosting EPS, share repurchases also limit an investor's downside -- no matter how far the stock falls, it always has a built-in pool of buyers. And from a tax perspective, buybacks have an advantage in that they're only taxed once.
Dividends, on the other hand, are taxed twice, first when a company reports a profit, and then when shareholders pocket it as income. But dividend payers have their own pluses -- their investors get the added bonus of passive income and capital gains. The money invested in dividend stocks can grow as the company grows, producing double returns.
Fortunately, there's no need to choose between dividends and company buybacks -- you can have your cake and eat it, too. If you're on the hunt for a bargain, high yielding dividend companies buying back their own shares can make particularly attractive picks.
An elevated dividend yield is often an indication of depressed stock price -- remember, the metric is a ratio, calculated by dividing annual dividend per share by price per share. Sometimes, this is a warning sign of trouble ahead.
But if the company's management team is continuing to buy back the stock, it could mean that they believe their stock to be undervalued. And if they're confident enough to use their cash to repurchase company stock, it's a strong signal that they've got the funds to pay their upcoming dividends.
Here's a list of high dividend yielding companies buying back their own shares. (Click here to access free, interactive tools to analyze these ideas.)
Buyback data sourced from RTT News. The list has been sorted by dividend yield.
|
Company |
Dividend Yield |
Buyback |
|---|---|---|
|
DPL |
4.72% |
On 10/28 the company announced a buyback program of $200M, representing about 6.5% of its market cap |
|
Entergy |
4.59% |
On 10/29 the company announced a buyback program of $500M, representing about 4% of its market cap |
|
Lockheed Martin |
4.07% |
On 10/25 the company announced a buyback program of $3.0B, representing about 11% of its market cap |
|
Comtech Telecommunications |
3.58% |
On 9/23 the company announced a buyback program of $100M, representing about 13% of its market cap |
|
ONEOK |
3.44% |
On 10/21 the company announced a buyback program of $750M, representing about 12.6% of its market cap |
|
Mattel |
3.43% |
On 11/15 the company announced a buyback program of $500M, representing about 5.8% of its market cap |
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research. Note: The numbers on top of items represent the forward P/E ratio, if available.
Kapitall's Eben Esterhuizen and Alicia Sellitti do not own shares of any companies mentioned.
