How Share Buybacks Can Affect Your Returns?

The best way to guarantee returns from share buybacks

March 2022

How Share Buybacks Can Affect Your Returns – As an investor, you are always on the lookout for stock with intrinsic value, which can propel your portfolio to the next level. That is where share buybacks are such a great asset as they allow you to figure out the company’s actual value.

How Share Buybacks Can Affect Your Returns

Most organizations engage in stock repurchases when they feel that their stock is undervalued in the market. That signals to investors that the organization’s prospects are about to change, and investing in that company’s stock will represent greater returns.

It’s not always easy to identify how share buybacks can affect your returns because a company could have different reasons for share buybacks. They could be looking at different ways to reward its shareholders and increase its stock price at the same time. To find value from share buybacks, you must look at the real reasons why the company decided to repurchase stock. That is easier said than done, and you must study the market conditions and the company’s history to identify if stock repurchase makes sense for them.

Finding Share Repurchase that Generates Returns

You are never guaranteed a return on your investment when you invest in stocks, which depends on market conditions and the overall performance of the stock over a period. That means investors are always gambling on the future as they can never be 100% sure that a stock will perform as well as expected. That is where share buybacks can offer you deeper insight into stock performance. It roughly translates that a company believes its stock is undervalued.

That allows investors to purchase stocks at their cheapest value and then wait for the stock price to increase in the coming weeks and months. That will mean using techniques to study the number of share buybacks that a company has implemented over time and whether they use it to increase the stock price or reward their shareholders. Finding share repurchases that generate returns isn’t always easy, and you need to have a decent understanding of the stock market to profit from it.

The easiest way to do that is to search for companies that are experiencing a downturn in fortunes. Once you notice that a company is going through a rough patch and their stock price has fallen dramatically, you will know that they are ripe for picking. The company will instigate a stock buyback program to purchase its shares on the market. That will mean fewer shares in circulation, and the company can take advantage of a higher stock price.

Get the Result You Want from Share Buybacks

You should remember that share buybacks aren’t always a good indicator that you should invest in a company’s stock. There are instances where the program can backfire, and the company will be stuck holding on to shares that continue losing value. As an investor, it is up to you to figure out which shares are worth investing in and which share buybacks will offer you greater returns on your investment. That is the secret between a successful investor and an unsuccessful investor.

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About the Author & How YOU Can Profit:  This article is the copyrighted product of the team at BuybackAnalytics.com  .

Buyback Analytics is a Top Tier Investing Platform to help investors find, analyze, and profit from investing opportunities not found through traditional investment tools. We specialize in this simple concept:  Follow the trades of Insiders – CONSISTENTLY PROFITABLE Traders, Investors, and Institutions because THEY get Inside Information that YOU don’t:

LEGAL Insider Trading / Inside Traders (CEOs, CFOs, Corporation’s Accountants & Attorneys, Politicians, etc.)
Stock Buybacks (Share Repurchases) by Public Corporations (ie. Apple, Tesla, Netflix, Meta (Facebook), Microsoft, etc.)
Market Moving Institutions (Examples: Market Makers, Investment Banks, Stock Brokerages, Hedge Funds, etc.)

Use of Our Articles: You are welcome to benefit from lots of FREE articles that you can read and learn from on our website blog.  You are also welcome to share or post this information as helpful content to your website or blog audience as long as the article, and this entire byline are left intact, word for word.  If you would like us to provide you with more, or bulk content for your blog or website to educate your audience on basic to expert financial and investor information & techniques, feel free to contact us at info@buybackanalytics.com .

3 Myths About How Share Buybacks Affect Stock Performance

The myths surrounding share buyback and their impact on the market

UPDATED: March 2022

3 Myths About How Share Buybacks Affect Stock Performance – For the past few years, companies in the United States have been on a share repurchase spree. This has raised concerns that the current high levels of the stock market are being driven by the appetite of businesses for their stocks. A share buyback-driven stock market may seem vulnerable, but companies have good reasons to buy back their shares. That’s because share buybacks offer companies a suitable way for returning profits to shareholders.

3 Myths About How Share Buybacks Affect Stock Performance

They also manage to boost share prices as demand outnumbers supply and reduces the total number of outstanding shares. The profits are then divided, which increases earnings per share (EPS) and makes the company more attractive for investors. Like other characteristics of stocks, share buybacks can be a major factor for exploiting the stock market to beat long-term returns.

Many investors have concerns about the high numbers of stock repurchases, which have resulted in a lot of misinformation being shared. We will look at 3 of the most concerning myths that have risen and debunk them here for you.

1. Myths About Share Buybacks – Share Buybacks ONLY Represent Short-Term Thinking

The critics of share buybacks claim that companies who buy back their stock are only thinking about short-term gains. That’s mainly down to the fact that they use the cash that’s meant for investment and innovation. Even though share buybacks are high, a recent report from JP Morgan has shown that at 2% market capitalization of the S&P 500, they meet the average for the past 15 years.

The volume of share buybacks has risen, but that’s mainly because companies are making more money, which has raised market capitalization and stock prices. Businesses have also been using cash repatriated after-tax to repurchase stock.

2. Myths About Share Buybacks – Companies Are Never Making the Best Use of Capital

The truth is, even though share prices of stock that are repurchased are higher than their average historically, they are still cheaper than the prices in the market. You won’t get better returns if you are buying cheaply because, after the financial crisis of 2008, companies who bought shares back at discounted prices were lagging behind those who repurchased at higher prices.

Valuations are set by the investors, and deciding to buy back stock is mainly down to the company thinking that their stock offers better value than any investment opportunity at that stage.

3. Myths About Share Buybacks – Companies Always Raise their Debt to Buy Back Shares

This is another myth that stems from the fact that companies borrow funds for share buybacks and capital spending. This trend is expected to catch on, but investors aren’t concerned about this right now. That’s because companies who raise their debt to buy back stock aren’t punished, and they generate similar returns to companies with lower debts.

Conclusion to 3 Myths About How Share Buybacks Affect Stock Performance

Companies that have weak balance sheets have been outperforming those who have debts, and it’s mainly because investors have faith that the company will pay off their debts when their share prices improve after buybacks.

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About the Author & How YOU Can Profit:  This article is the copyrighted product of the team at BuybackAnalytics.com  .

Buyback Analytics is a Top Tier Investing Platform to help investors find, analyze, and profit from investing opportunities not found through traditional investment tools. We specialize in this simple concept:  Follow the trades of Insiders – CONSISTENTLY PROFITABLE Traders, Investors, and Institutions because THEY get Inside Information that YOU don’t:

LEGAL Insider Trading / Inside Traders (CEOs, CFOs, Corporation’s Accountants & Attorneys, Politicians, etc.)
Stock Buybacks (Share Repurchases) by Public Corporations (ie. Apple, Tesla, Netflix, Meta (Facebook), Microsoft, etc.)
Market Moving Institutions (Examples: Market Makers, Investment Banks, Stock Brokerages, Hedge Funds, etc.)

Use of Our Articles: You are welcome to benefit from lots of FREE articles that you can read and learn from on our website blog.  You are also welcome to share or post this information as helpful content to your website or blog audience as long as the article, and this entire byline are left intact, word for word.  If you would like us to provide you with more, or bulk content for your blog or website to educate your audience on basic to expert financial and investor information & techniques, feel free to contact us at info@buybackanalytics.com .

When Does It Benefit a Company to Buyback Outstanding Shares?

How companies can profit when they buy back their outstanding shares

UPDATED: March 2022

When Does It Benefit a Company to Buyback Outstanding Shares? – When a company announces a share buyback program, they are officially signalling their intention to buy back some of their outstanding shares issued to raise capital. Shareholders are paid the market value of their stocks at the time of repurchase in exchange for periodic dividends and giving up their ownership in the company.

When Does It Benefit a Company to Buyback Outstanding Shares?

There are several reasons why it makes perfect sense for a company to repurchase its outstanding shares. Repurchasing shares helps a company reduce their cost of capital, consolidate ownership, benefit from undervaluation of their stock temporarily, and free up profits for paying executive bonuses and inflating financial metrics. We will look at when purchasing outstanding shares that will benefit a company right here.

Capitalizing on Undervalued Shares

A buyback program isn’t initiated by the company when it feels that it doesn’t have any further use of equity funding. The company can use buybacks strategically to generate more equity capital and not issue any additional shares. If the company decides that its stock is undervalued, it can buy back all or some of the outstanding shares at a reduced price and wait till the market corrects itself.

When the stock prices increase again, the company can reissue the shares at the new price, which increases the equity capital and keeps the outstanding shares at a stable number.

Consolidating Ownership

The company also uses share buybacks to consolidate its ownership. Every share represents an ownership stake in the business, and when the company has fewer outstanding shares, they have fewer people they must answer to. When there are fewer outstanding shares, a company can inflate its financial metrics, which investors and analysts use to assess the business’s growth potential and value.

The earnings per share (EPS) ratio increases automatically, and the return on equity (ROE) also rises when profits remain stable and shareholder equity decreases. Even though it makes sense that a company would try to ensure its control remains in the core leadership’s hands, share buybacks are generally used to increase compensation for executives. The company’s net profit is used to pay out shareholder dividends, and when there are fewer shareholders, the profit is divided into fewer parts. This distribution makes the company look more profitable to outside investors.

Reducing Cost of Equity Financing

A business will consider a share buyback when they no longer require any use for equity funding. So, instead of dealing with the unneeded equity and the dividend payments that go with it, the company decides to refund the shareholders’ investment by reducing the average capital cost. However, equity capital and debt are used for funding growth.

Conclusion to When Does It Benefit a Company to Buyback Outstanding Shares?

When a business decides to refund equity capital, that shows there are no profitable expansion projects left to invest in. A blue-chip company, which is already dominating its industry will repurchase shares as there is no room left for growth.

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About the Author & How YOU Can Profit:  This article is the copyrighted product of the team at BuybackAnalytics.com  .

Buyback Analytics is a Top Tier Investing Platform to help investors find, analyze, and profit from investing opportunities not found through traditional investment tools. We specialize in this simple concept:  Follow the trades of Insiders – CONSISTENTLY PROFITABLE Traders, Investors, and Institutions because THEY get Inside Information that YOU don’t:

LEGAL Insider Trading / Inside Traders (CEOs, CFOs, Corporation’s Accountants & Attorneys, Politicians, etc.)
Stock Buybacks (Share Repurchases) by Public Corporations (ie. Apple, Tesla, Netflix, Meta (Facebook), Microsoft, etc.)
Market Moving Institutions (Examples: Market Makers, Investment Banks, Stock Brokerages, Hedge Funds, etc.)

Use of Our Articles: You are welcome to benefit from lots of FREE articles that you can read and learn from on our website blog.  You are also welcome to share or post this information as helpful content to your website or blog audience as long as the article, and this entire byline are left intact, word for word.  If you would like us to provide you with more, or bulk content for your blog or website to educate your audience on basic to expert financial and investor information & techniques, feel free to contact us at info@buybackanalytics.com .

The Different Methods of Share Buyback

Methods companies can employ for share buyback

UPDATED: March 2022

The Different Methods of Share Buyback – Stock repurchases, which are also called share buybacks, happen when a company decides to buy its outstanding shares to reduce the number of shares on the market.

The Different Methods of Share Buyback

There are several reasons why companies decide to repurchase shares, and there are generally two parties involved in the transaction, the company and the shareholders.

Interested shareholders are given cash by the company to repurchase the shares, and there are different methods through which this transaction can take place. We are going to be looking at them in detail below.

Methods of Share Buybacks

In general, the most common methods employed by companies for share buybacks are through a fixed tender price offer, open market operations, direct negotiations with shareholders, and a Dutch auction tender offer. Here’s how each method works:

1. Open Market Share Buyback

In this method, the company will repurchase shares straight from the market, and the brokers of the company will execute the transactions. Generally, the repurchase of shares takes place over a prolonged period as there are many shares to be acquired. In this method, the company doesn’t have to complete the buyback program and can cancel it at any time. The main advantage here is that it is very economical for a company since it can repurchase shares without paying a premium.

2. Fixed-Price Tender Offer

In this method, the company will make a tender offer to its shareholders to repurchase the shares at a fixed price and on a fixed date. To encourage shareholders to sell their shares, the company will offer a premium on the current price of the shares. Those shareholders who want to sell their shares will then submit the number of shares they want to sell to the company. The fixed-price tender offer allows a company to repurchase shares within a short period.

3. Dutch Auction Tender Offer

In this method, the company offers a tender offer to shareholders for repurchasing their shares and offers multiple prices. The minimum price offered for the shares will be higher than the current market price of the shares. The shareholders will then submit bids for the number of shares they are willing to sell and the minimum price they want to sell them. The company will review the bids from the shareholders and decide on a suitable price to repurchase the shares. The main advantage of the Dutch Auction tender offer is that it allows a company to complete share buybacks in a short period.

4. Direct Negotiation

In this method, the company will approach shareholders directly to repurchase company shares. The price of the share will come with a premium, and the main benefit of direct negotiation is that it allows companies to deal with shareholders directly. However, it should be noted that this can be a time-consuming process.

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About the Author & How YOU Can Profit:  This article is the copyrighted product of the team at BuybackAnalytics.com .

Buyback Analytics is a Top Tier Investing Platform to help investors find, analyze, and profit from investing opportunities not found through traditional investment tools. We specialize in this simple concept:  Follow the trades of Insiders – CONSISTENTLY PROFITABLE Traders, Investors, and Institutions because THEY get Inside Information that YOU don’t:

LEGAL Insider Trading / Inside Traders (CEOs, CFOs, Corporation’s Accountants & Attorneys, Politicians, etc.)
Stock Buybacks (Share Repurchases) by Public Corporations (ie. Apple, Tesla, Netflix, Meta (Facebook), Microsoft, etc.)
Market Moving Institutions (Examples: Market Makers, Investment Banks, Stock Brokerages, Hedge Funds, etc.)

Use of Our Articles: You are welcome to benefit from lots of FREE articles that you can read and learn from on our website blog.  You are also welcome to share or post this information as helpful content to your website or blog audience as long as the article, and this entire byline are left intact, word for word.  If you would like us to provide you with more, or bulk content for your blog or website to educate your audience on basic to expert financial and investor information & techniques, feel free to contact us at info@buybackanalytics.com .

Is Share Buyback Better for You As An Investor or Dividend Payment?

The difference between share buybacks and dividend payments and which is better

UPDATED: April 2022

Is Share Buyback Better for You As An Investor or Dividend Payment? – There are two main ways companies can return spare cash to shareholders. One’s through a share buyback, and the other one is as a dividend.

Is Share Buyback Better for You As An Investor or Dividend Payment?

However, what are those two things, what’s the difference, and more importantly, what do they mean for you as an investor? Below, we cover all of these topics to break down the jargon and get to the heart of what buybacks and dividends mean for you.

What Are Dividends?

So, the question is: What Are Dividends? Dividends are cash payments to shareholders. “Ordinary” dividends are usually paid twice a year, after interim and final results. That means shareholders should get a steady source of income. Because dividends are at a manager’s discretion, they’re not guaranteed and can vary in size.

How Do Dividends Affect You?

If you’re looking to use dividend payments as an income, you might want to look at a company’s dividend yield. The yield is the annual dividend payment as a percentage of its current share price. So, How Do Dividends Affect You? Well, if a company’s share price is 100p, and it has paid a dividend of 6p in the past year, the dividend yield is 6%. Yields are usually calculated using last year’s dividend. This means they aren’t a reliable guide to the income you’ll get in the future, as there’s no guarantee last year’s payment will be repeated this year.

As an investor, dividends provide flexibility in that you can choose what you do with the cash. You could:

  • Reinvest to buy more shares in the company
  • Buy shares in another company
  • Use it as an income

You’re taxed on dividends when you hold shares outside an ISA and a SIPP, so receiving a higher payment and then reinvesting it back into the company might not be in your best interests. Remember, tax rules can change, and benefits depend on your individual circumstances.

What Are Share Buybacks?

A share buyback is when a company uses its extra cash to buy its own shares and usually cancels them.

How Do Share Buybacks Affect You?

A buyback means you’ll own the same number of shares, but because there are fewer shares in existence, the value of your shares should rise, all else being equal. You’ve got a bigger slice of the same pie. Remember, all investments can fall as well as rise, so investors might get less back than they invest.

Ideally, a share buyback will take place when the company’s management thinks the shares are undervalued. This is one half of the basic “buy low, sell high” mantra. If the company plays its cards right, this can be great for investors. A well-executed share buyback can save shareholders having to pick the right time to reinvest a dividend payment. However, there’s always the chance of the management buying back the shares at the wrong time. Generally, share buybacks can:

  • Give a positive signal that the company thinks its shares are worth more than they’re trading at but remember this won’t always be the case.
  • Increase the value of existing shares.
  • Cut out the middle man. If you reinvest your dividends, a share buyback does it for you, saving you dealing charges.

A company is under no obligation as far as share buybacks go. In most cases, it can stop repurchasing shares whenever it wants. They aren’t committed to dividend payments either, but the management will typically think about stopping a buyback before cutting the dividend.

Conclusion of Is Share Buyback Better for You As An Investor or Dividend Payment?

There’s no clear winner in the buybacks vs. dividends debate, as both are good news for investors. However, it’s important to remember their differences. The key takeaway is that dividends are better for income, while buybacks are more geared towards capital growth. Whatever your circumstances, understanding the differences means you can choose what’s right for your investment goals.

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About the Author & How YOU Can Profit:  This article is the copyrighted product of the team at BuybackAnalytics.com .

Buyback Analytics is a Top Tier Investing Platform to help investors find, analyze, and profit from investing opportunities not found through traditional investment tools. We specialize in this simple concept:  Follow the trades of Insiders – CONSISTENTLY PROFITABLE Traders, Investors, and Institutions because THEY get Inside Information that YOU don’t:

LEGAL Insider Trading / Inside Traders (CEOs, CFOs, Corporation’s Accountants & Attorneys, Politicians, etc.)
Stock Buybacks (Share Repurchases) by Public Corporations (ie. Apple, Tesla, Netflix, Meta (Facebook), Microsoft, etc.)
Market Moving Institutions (Examples: Market Makers, Investment Banks, Stock Brokerages, Hedge Funds, etc.)

Use of Our Articles: You are welcome to benefit from lots of FREE articles that you can read and learn from on our website blog.  You are also welcome to share or post this information as helpful content to your website or blog audience as long as the article, and this entire byline are left intact, word for word.  If you would like us to provide you with more, or bulk content for your blog or website to educate your audience on basic to expert financial and investor information & techniques, feel free to contact us at info@buybackanalytics.com .

3 Reasons Why a Company Should Consider a Share Buyback

Why companies choose to buy back their shares

UPDATED: April 2022

3 Reasons Why a Company Should Consider a Share Buyback – Share buybacks refer to the repurchase of shares or stocks by the company that issued them. A buyback occurs when the issuing company pays shareholders the market value per share and re-absorbs that portion of its ownership that was previously distributed among public and private investors. With share buybacks, the company can directly purchase the stock on the open market or from its shareholders.

In recent decades, share buybacks have overtaken dividends as a preferred way to return cash to shareholders. Though smaller companies may also choose to exercise buybacks, blue-chip companies are much more likely to do so because of the cost involved.

3 Reasons Why a Company Should Consider a Share Buyback

As companies raise equity capital by selling common and preferred shares, it may seem counter-intuitive that a business might choose to give that money back. However, there are numerous reasons why it may be beneficial for a company to repurchase its shares, including ownership consolidation, undervaluation, and boosting its key financial ratios. Here are some of the reasons why companies should consider a share buyback.

1. Unused Cash is Costly – Reasons to Buyback Stock

Each share of common stock represents a small stake in the issuing company’s ownership, including the right to vote on the company policy and financial decisions. Companies issue shares to raise equity capital to fund expansion, but if there are no potential growth opportunities in sight, holding on to all that unused equity funding means sharing ownership for no reason.

Businesses that have expanded to dominate their industries may find that there is little growth to be had. With so little headroom left to grow into, carrying large amounts of equity capital on the balance sheet becomes more of a burden than a blessing. Shareholders demand returns on their investments in the form of dividends, which is a cost of equity, so the business is essentially paying for the privilege of accessing funds it isn’t using.

Buying back some or all of the outstanding shares can be a simple way to pay off investors and reduce the overall cost of capital. This is just one of the 3 reasons why a company should consider a share buyback

2. Preserves the Stock Price – Reasons to Buyback Stock

The second of 3 reasons why a company should consider a share buyback. Shareholders usually want a steady stream of increasing dividends from the company, and one of the goals of company executives is to maximize shareholder wealth. However, company executives must balance appeasing shareholders with staying nimble if the economy dips into a recession.

One of the hardest-hit banks during the Great Recession was the Bank of America Corporation (BAC). Since then, the bank has recovered nicely but still has some work to do in getting back to its former glory. As of the end of 2017, Bank of America had bought back nearly 300 million shares over the prior 12-month period. Although the dividend had increased over the same period, the bank’s executive management had consistently allocated more cash to repurchases than dividends.

3. The Stock is Undervalued – Reasons to Buyback Stock

Another major motive for businesses to do buybacks is that they genuinely feel their shares are undervalued. Undervaluation occurs for many reasons, often due to investors’ inability to see past a business’s short-term performance, sensationalist news items, or a general bearish sentiment. A wave of share buybacks swept the United States in 2010 and 2011 when the economy underwent a promising recovery from the Great Recession.

Many companies began making optimistic forecasts for the coming years, but company stock prices still reflected the economic doldrums that plagued them in years prior. These companies invested in themselves by repurchasing shares, hoping to capitalize when share prices finally began to reflect new and improved economic realities.

About the Author & How YOU Can Profit:  This article is the copyrighted product of the team at BuybackAnalytics.com .

Buyback Analytics is a Top Tier Investing Platform to help investors find, analyze, and profit from investing opportunities not found through traditional investment tools. We specialize in this simple concept:  Follow the trades of Insiders – CONSISTENTLY PROFITABLE Traders, Investors, and Institutions because THEY get Inside Information that YOU don’t:

LEGAL Insider Trading / Inside Traders (CEOs, CFOs, Corporation’s Accountants & Attorneys, Politicians, etc.)
Stock Buybacks (Share Repurchases) by Public Corporations (ie. Apple, Tesla, Netflix, Meta (Facebook), Microsoft, etc.)
Market Moving Institutions (Examples: Market Makers, Investment Banks, Stock Brokerages, Hedge Funds, etc.)

Use of Our Articles: You are welcome to benefit from lots of FREE articles that you can read and learn from on our website blog.  You are also welcome to share or post this information as helpful content to your website or blog audience as long as the article, and this entire byline are left intact, word for word.  If you would like us to provide you with more, or bulk content for your blog or website to educate your audience on basic to expert financial and investor information & techniques, feel free to contact us at info@buybackanalytics.com .