Buybacks or stock buybacks are when a public company decides to purchase back its own shares, decreasing the number of available shares on the open market. Buybacks raise a company’s earnings per share. It’s simple arithmetic: buybacks reduce the number of shares outstanding.
To get earnings per share, you divide total earnings by the number of shares outstanding. When you reduce the divisor-because the company has fewer shares outstanding, due to stock buybacks-the calculation gives you a higher number for earnings per share. On the whole, buyers are willing to pay slightly more for a stock with slightly higher earnings per share. When you hold a stock in your personal, taxable account and it pays a cash dividend, you have to pay tax on the dividend in the year in which you receive it. When a company initiates a buyback program the dividend isn’t distributed (and subject to tax) but the share price tends to rise and boost investor returns. This added opportunity for tax deferral may not seem like much of an advantage in any single year.
However, the magic of compound interest applies to that tax deferral. It can add up to a huge advantage over a decade or two. The advantage expands all the more if you hold off on selling until you need the money. That holding period may even last until you retire, when your income tax rate is likely to be much lower. We think investors should be just as excited for buyback programs as dividends. Enhance your stock market returns by following TSI Network and using our three-part Successful Investor strategy:
Invest mainly in well-established companies;
Spread your money out across most if not all of the five main economic sectors (Manufacturing & Industry; Resources & Commodities; Consumer; Finance; Utilities);
Downplay or avoid stocks in the broker/media limelight.
Our new report, 10 Stocks to Buy and Hold Forever, identifies 10 stocks you can hold for the long term and shows you exactly how to profit from a portfolio that’s built to last. And it’s yours FREE!
This industrial stock has rebounded strongly from its pandemic lows as the economy re-opens. While supply-chain disruptions and rising costs for labour and shipping add risk, this firm continues to reward investors with higher dividends and share buybacks.
Recent acquisitions and divestments have focused the firm… Read More
The company is Canada’s largest traditional telephone service provider: it has 2.26 million residential customers in Ontario, Quebec, Manitoba and the Atlantic provinces. BCE also has 3.95 million high-speed Internet users and 2.74 million TV subscribers (satellite… Read More
Dividend reinvestment plans, or DRIPs, are plans some companies offer to allow shareholders to receive additional shares in lieu of cash dividends. DRIPs bypass brokers, so shareholders save on commissions
DRIPs also eliminate the nuisance effect of receiving small cash dividend payments. Second, some DRIPs let… Read More
ROYAL BANK OF CANADA, $136.66, Toronto symbol RY, is a buy.
Royal raised your quarterly dividend by 11.1% with the February 2022 payment. Investors now receive $1.20 a share instead of $1.08. The new annual rate of $4.80 yields 3.5%. The bank also plans to repurchase… Read More
ROYAL BANK OF CANADA, $137.32, Toronto symbol RY, is a buy.
The bank will now purchase U.K.-based wealth management firm Brewin Dolphin Holdings Plc. Its assets under management totalled 59 billion British pounds (roughly $101 billion Canadian) as of December 31, 2021.
McDonald’s was the first Western fast-food chain to enter Russia (then the Soviet Union) in January 1990.
However, in response to Russia’s invasion of Ukraine, McDonald’s recently announced that it is temporarily closing its outlets in both countries: 847 in Russia (84% of which are owned… Read More
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What personal information do we collect?
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