Share Repurchases and the Associated Risks

Find out about the risks associated with share repurchases

February 2022

Share Repurchases and the Associated Risks – In recent years, share repurchases (stock buybacks) have skyrocketed as companies prioritize spending their funds on stock buyback programs instead of investing for the future. These share repurchases have become a hot topic, and many lawmakers and politicians are advising against the negative impact of these stock buyback programs. The last decade has seen some of the biggest corporations in the world involve in share repurchases.

Share Repurchases and the Associated Risks

These include the likes of Apple, which leads the way with over $10 billion spent in stock buybacks. Companies are spending their revenue on share buybacks to drive up their stock price, but they are also doing so by borrowing money from financial institutions. This has caused great concern among lawmakers who believe that adopting such as approach might be counter-intuitive in the long run.

It places tremendous pressure on corporations to ensure that they maximize their share repurchases. If they are unable to repay the loans they have taken to buy back their stock, it could result in an economic depression, the likes of which haven’t been seen since 2007. While it may seem like a drastic statement, there is some truth involved because companies interested in only share repurchases are missing the bigger picture.

No Scope for the Future of Share Repurchases / Stock Buybacks

Instead of investing in their resources and training their employees, they spend money on their stocks to inflate their value. That is a short-term goal for companies and will not help them in the longer run. This approach will come back to haunt them in the end, because most companies aren’t equipped to deal with the challenges they will face in the market.

If an organization wants to ensure that its prospects will not be compromised, it must start investing money in the company. The argument by critics today is that companies are using their money to inflate their share prices and reward insiders and investors. They should be worried about investing in new products or hiring new employees instead.

Share Repurchases and the Associated Risks in the Current Market

The current market is strange because as the world comes to grips with the pandemic, the stock market is down, and every company’s share prices are suffering as a result. That has forced several corporations to dip into their coffers and invest in stock buyback programs. The strategy is not sustainable, and even though it presents results in the short-term, there is also the risk that it would lead to the kind of financial crisis that the world witnessed in 2008.

There have been calls in the marketplace to develop new laws and regulations that stop companies from repurchasing their shares. What action lawmakers take to put a hold on share repurchases and reduce the risks involved in stock buybacks remains to be seen.

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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 SUCCESSFUL, PROFITABLE Traders, Investors, and Institutions:

LEGAL Insider Trading / Inside Trades (CEOs, CFOs, Corporation’s Accountants & Attorneys, Politicians, etc.)
Stock Buybacks / Share Repurchases by Public Corporations (ie. Apple, Tesla, Netflix, 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 .

How to Invest in Blue-Chip Stocks

Everything you should know about Blue-Chip stocks

UPDATED: March 2022

How to Invest in Blue-Chip Stocks – If you’re thinking of expanding your investment portfolio when the market shows volatility, your best bet would be to invest in blue-chip stocks. These are stocks from blue-chip companies, i.e., stable and renowned companies in the US that have been around for a long time. Due to their size and the relatively lesser risk of investing, most investors prefer to invest in blue-chip stocks during times of market turmoil.

How to Invest in Blue-Chip Stocks

The coronavirus pandemic has negatively affected the stock market, which means blue-chip stocks are popular among investors now. So, if you’re thinking about investing, it would be in your best interests to consider investing in blue-chip stocks. Before we get to that, here is everything you should know about them.

What Are Blue-Chip Stocks?

There’s no exclusive definition of a blue-chip stock, as they are generally stocks of a company that meets specific criteria from investors. When people refer to a company as blue-chip, they do so because the company has displayed the following characteristics:

* Substantial Market Cap

When you look at blue-chip stocks, you realize that most of them are giants of the stock market, primarily due to their market capitalization. Stocks with large market caps are generally stocks with more than $10 billion of market capitalization, and some may even have a $200 billion market cap.

* History of Stable Earnings

Blue-chip companies aren’t businesses that have a good track record for a couple of years. Blue-chip companies have stable earnings history, an extensive track record of years, and decades of great earnings before they qualify for a blue-chip ranking.

* Excellent Growth Prospects

To qualify as a blue-chip company, there must be a solid plan for the organization’s future growth. In general, blue-chip stocks have excellent growth prospects and a great earnings record. The company’s growth rate may decline at some point, but the company will continue growing.

* Market Leaders in Blue-Chip Stocks

Massive conglomerates that have been around in the industry are the most popular blue-chip stocks because they have the finances and track record to withstand market downturns. Most blue-chip companies are listed on the S&P 500.

Why Invest in Blue-Chip Stocks?

Most exchange-traded funds and mutual funds have blue-chip stocks in their portfolio, and if you have a 401(k) plan from work, you could be the owner of a blue-chip stock without even knowing about it. Blue-chip stocks are a great investment option because they will always be a safe bet regardless of market conditions. That’s because blue-chip companies aren’t affected as severely as other companies when the economy is experiencing a downturn.

Therefore, if you have invested in blue-chip stocks, you can rely on them to provide you with stable returns on your investment for the long run.

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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 .

How to Invest in Dividend Stocks

The best way to invest in dividend stocks

UPDATED: March 2022

How to Invest in Dividend Stocks – If you’re a retiree or want a stable income from your investment portfolio, consider investing in dividend stocks. During uncertain times, the revenue generated from dividends ensures that your portfolio offers steady returns on your investment. Due to this reason, many investors are suddenly shifting their attention to dividend stock investments, and we recommend you should do the same.

What Are Dividend Stocks?

Any stock that regularly pays shareholders dividends is known as a dividend stock. They are generally well-established and large companies with predictable earnings and revenues and want to return their earnings to shareholders through dividends.

The industries that commonly pay out dividends to shareholders are generally energy companies, financial companies, utilities, and healthcare companies. If you’re thinking about how to invest in dividend stocks, consider companies paying higher dividends, which should be around 2% per year.

How to Invest in Dividend Stocks?

There are several methods you can employ when investing in dividend stocks. It is best to use a broker or brokerage firm’s services, as they have more experience in dividend stocks investing. Here is the process you should follow:

1. Research Quality Stocks that have Low Volatility

The first step involves finding dividend stocks worthy of investment. You can do that through a stock screener that your broker will provide. All you need to do is enter your requirements into the screener, and it will provide a list of options. You must ensure that the company you decide to invest in has famous product lines, a well-established reputation, steady revenue growth, and strong management. Also, check the price volatility of the dividend stock.

2. Evaluate the Stock

Once you have selected a company that pays out high dividends, evaluate the stock before adding it to your investment portfolio. The best way to go about is finding stock quotes from reputable financial websites like Bloomberg and MarketWatch. You should compare the company to its competitors and figure out where the stock stands concerning the market. You also need to check the dividend payout ratio to learn whether the company will remain profitable in the future.

3. Decide How Much You Want to Invest

When you have researched and evaluated the stock, you must decide how much you want to invest in the dividend stock. The best advice is to diversify your investment, which means not putting all your eggs in one basket. Dividends aren’t guaranteed, and a company’s financial status can quickly change in these uncertain times. Therefore, you should purchase multiple dividend stocks in different companies so that you have a diverse portfolio.

4. Purchase Stock from the Company or Through Your Broker

The last step is simple; all you need to do is purchase the dividend stock you want from the company or buy it through your broker. You can purchase the stock through a direct stock purchase plan commonly known as the DSSP. Most companies don’t offer them, but the larger, well-established companies do have this option. You can purchase the company’s stock without any fees and are best for investing in companies for several years.

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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 .

How to Fully Benefit from Monitoring the Trades of Company Insiders

The best way to use insider trading information to your benefit

UPDATED: April 2022

How to Fully Benefit from Monitoring the Trades of Company Insiders – Insiders are the executive managers and directors who are in front of the financial and strategic decision making of their firm. Insider trading activity is very informative to follow because their trades tell us something about the valuation of stock since insiders know their business better than anyone else. As a consequence of having performed months of empirical research on insider out-performance and having read all papers covering the topic, our knowledge on the topic is extensive.

How to Fully Benefit from Monitoring the Trades of Company Insiders

Our experience tells us that there are several significant misgivings and misunderstandings regarding insider information. In this article, we will discuss the biggest misunderstandings and provide some valuable information to take into account if you want to follow up on insider trades for investment purposes.

1. Take Insider Purchases in Consideration to Reduce the Impact of Human Emotions

Every investor knows the feeling of hesitation regarding an investment decision as it can have a strong impact on your wealth. These emotions are particularly present when the stock makes a sudden steep drop or if the share price is depressed for a significant time period. Due to this biased behavior and a lack of knowledge about the firm, potential buyers oftentimes don’t engage in strong buying opportunities, and owners sell out of fear that they will lose even more money.

If you feel like you are beginning to trade based on emotions rather than facts, insider activity can help with making investment decisions. If you are hesitating about a stock, check out whether insiders were buying recently. As these insiders know perfectly how their company is doing, this can increase your knowledge about the company’s prospects.

2. Take Insider Purchasing Activity More Seriously When They Trade in Clusters

Many empirical papers have been written regarding the most informative insider trades. One of the most significant findings came from Alldredge et al, who found that clustered trades (multiple insiders buying close to each other) outperform solitary trades significantly. They found that the one-month abnormal return (return in excess of the market movement, taking into account the stock’s risks) for clustered insider trades was 2.1% compared to 1.3% for solitary trades, a significant difference.

This is intuitive because when many insiders buy their stock, the probability of undervaluation could be higher. Thus, if you are taking into account insider purchases in your investment strategy, clustered purchases are more informative than solitary ones.

3. Don’t Give Attention to Insider Trades, It Doesn’t Tell You Anything About Returns

The biggest misunderstanding regarding insider trades is about the insider sales information. There’s much empirical evidence that contradicts the statement that insider sales are negative for the stock. Insider sales have no relationship with future stock returns as there are many reasons to sell a stock, such as wealth diversification, exercising granted stock options, and freeing money to buy other things. Therefore, one should not look at insider sales at all.

Many insiders such as Mark Zuckerberg from Facebook and Tim Cook from Apple just sell shares regularly because they want to cash in some options. That doesn’t tell us anything about the stock’s valuation.

Conclusion to How to Fully Benefit from Monitoring the Trades of Company Insiders

Insider information can be very valuable to include in your investment strategy. However, there’s a wide divergence in performance between the hundreds of purchases each month. For example, routine trades are not informative, solitary trades are less informative, and insiders outperform, particularly in value stocks, proven by empirical evidence. We suggest taking the tips provided in this article into consideration when you analyze insider trades in the future. It could improve your returns significantly.

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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 .

Advantages and Disadvantages of Insider Trading

Figuring out the pros and cons of insider trading and how it can benefit you

UPDATED: April 2022

Advantages and Disadvantages of Insider Trading – A debate rages on in the financial community among professionals and academics about whether insider trading is good or bad for markets.

Advantages and Disadvantages of Insider Trading

Insider trading refers to the purchase or sale of securities by someone with information that is material and not public in the realm. Insider trading is not limited to company management, directors, and employees. Outside investors, brokers, and fund managers can also violate insider trading laws if they access non-public information.

Advantages of Insider Trading

The advantages of insider trading, defined as buying and selling stocks based on information originating within the relevant organization or business that is not publicly available, are clear. Those engaged in insider trading are partaking in a low-risk, high-reward practice that can reap considerable financial rewards. Insider trading is commonly assumed to be entirely illegal, but there’s a legal means of trading in stocks with inside information.

Employees and corporate officers are legally entitled to trade in the stocks of their own company. As long as those transactions are properly reported to the U.S. Securities and Exchange Commission (SEC), the transactions are perfectly legal and highly profitable.

Insider Trading Is Illegal?

Insider trading is illegal and has landed many investors in legal trouble, including spending years in prison, when it involves individuals outside of the corporation in question who buy or sell stock in that corporation based on information provided from individuals inside the corporation, who are privy to sensitive, proprietary information not accessible to the general public.

Illegal insider trading includes buying and selling stocks, the change in value that can be inferred logically from information an individual possesses about a particular corporation based on their association with that corporation. An example could include employees or officers of financial services companies doing business with the corporation whose stock they are trading.

Disadvantages of Insider Trading

In the case of illegal insider trading, the disadvantages are clear: prosecution by the U.S. Department of Justice and civil suits filed on behalf of shareholders by private and government agencies. Violations of laws restricting insider trading carry significant financial penalties and can, as noted, involve prison sentences. Among prominent individuals convicted of insider trading are:

  • R. Foster Winans, a former reporter for the Wall Street Journal. He was convicted of providing information attained in the performance of his duties as a reporter for the financial benefit of friends.
  • Ivan Boesky, one of the faces of the massive insider trading scandal of the late 1980s. He was fined $100 million and sentenced to three and a half years in prison.
  • Television personality Martha Stewart. She was fined and sentenced to ten months in prison.
  • Jeffery Skilling, Enron’s former CEO. He brought the company to the center of an enormous accounting scandal that resulted in him being fined $45 million and sentenced to two years in prison.

Conclusion to Advantages and Disadvantages of Insider Trading

When considering the Advantages and Disadvantages of Insider Trading, the major factors are: The advantages of insider trading, the reason it is commonly practiced, is the potentially enormous financial gains it can provide. The disadvantage is, when conducted illegally, it can lead to public exposure, heavy financial penalties, and a prison sentence.

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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 .