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Topic: How To Invest

Stock investing: Buybacks and dividends give shareholders a double reward

Stock Investing: BCE Fiber Truck

Successful investors know that there is more to good stock investing than simply picking stocks whose share prices will rise. You add a great deal of value to your portfolio when you also select stocks that are prepared to distribute their profits to the shareholders.

A company can share the wealth in two main ways—it can buy back its own shares, or it can pay dividends. Both pay off for investors, especially in BCE’s case.

While buying Maple Leafs, BCE announces dividend raise and share buybacks

A prime example of just how dividends and buybacks can be a double win for investors comes from BCE Inc. (symbol BCE on Toronto), a stock we cover in The Successful Investor.

In December 2011, BCE made headlines when it teamed up with its telecom rival, Rogers Communications Inc. (symbol RCI.B on Toronto), to buy Maple Leafs Sports and Entertainment (MLSE). Yet even as it was making that deal, the company quietly announced two other initiatives that offer a more tangible reward to shareholders.

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The company raised its quarterly dividend by 4.8%, to $0.5425 a share from $0.5175. The new annual rate of $2.17 yields 5.2%. This was the seventh dividend raise by BCE in the past three years.

The company also plans to buy back $250 million of its shares over the next year. That’s less than 1% of its $31.7-billion market cap. And the buybacks will raise earnings per share and other per-share calculations and give the remaining shareholders a larger stake in the company.

If you stick with our long-standing advice of investing mainly in well-established, dividend-paying companies with strong business prospects (like those we recommend in The Successful Investor), you will automatically earn regular dividend income. And you will also have an excellent chance of benefiting from companies that buy back their shares regularly.

Plus, the fact that these companies have strong positions in healthy industries makes it more likely that they will buy back shares on a regular basis, and raise their dividends.

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