To pay shareholders a dividend or to buy back stock -- perhaps the oldest dilemma a company can face. On one hand, with a dividend, I as an investor get the instant benefit of having cash in my hand. On the other, repurchasing shares places more emphasis on the value a company sees in its stock and often speaks to expected long-term success.
Compared to 2008, companies are now ripe with cash on their balance sheets, but up until recently, they've been too worried about macroeconomic conditions to deploy it. Apparently that time is swiftly coming to an end, because it appears the share repurchasing gates opened with a vengeance yesterday. Seven companies announced new stock repurchase programs or expanded already-existing programs. For those of you who are curious, here are yesterday's announcements, which largely flew under the radar:
|
Company |
Announced Share Repurchase or Increase |
Buyback as a Percentage of Outstanding Shares |
|---|---|---|
|
Colgate-Palmolive |
50 million shares |
10.3% |
|
Warnaco Group |
$200 million |
9.3% |
|
IntercontinentalExchange |
$300 million |
3.5% |
|
Washington Post |
750,000 shares |
9.5% |
|
HollyFrontier |
$100 million |
1.3% |
|
Maxygen |
$10 million |
6.1% |
Sources: Capital IQ, (a division of Standard & Poor's) and news releases.
Share buybacks are good for shareholders for a few reasons. First, as shares are repurchased by a company, it reduces the amount of shares outstanding to which a company's net income is compared. Or in easier-to-understand terms, it helps inflate a company's earnings per share. Second, it shows a company's conviction that its shares are undervalued. Finally, it puts idle cash to work for the shareholder. Consider share buybacks an intangible payout that you don't immediately get to hold in your hands, but that could pay handsome dividends down the road.
One thing you'll notice about yesterday's buyback announcements is the diversity among sectors. From safe-haven consumer staple Colgate to speculative biotech Maxygen, the cash is out there and companies are increasingly comfortable using it to unlock shareholder value.
While share buybacks are not a resounding "buy" signal for any company, the sheer number of buybacks that occurred yesterday was enough to catch my attention. As market volatility remains high, companies repurchasing their own shares could become yet another safe haven for investors seeking stability. One way you can start your research to determine whether or not these companies are right for you is to add them to your watchlist so you can keep up on the latest news affecting each company.
Add Colgate-Palmolive, Warnaco Group, IntercontinentalExchange, Washington Post, HollyFrontier, and Maxygen to your watchlist.
