Share Buybacks

Discuss your favourite picks, broker, and trading or investment style.
DenisD
Veteran Contributor
Veteran Contributor
Posts: 4081
Joined: 19 Feb 2005 01:24
Location: Calgary

Post by DenisD »

A few months ago, my wrist problems flared up and I had to cut back on computer use. So I haven't been posting on this forum. Just lurking from time to time. The wrists have improved considerably in the past few weeks. I'm not sure why.

But it's just in time for the autumn refresh of my Canadian large-cap screen. With a fair bit of help, I've managed to get all the numbers together. And I'll be doing the refresh in a few days.

One of the inputs to the screen is the % of shares bought back over the previous year. I thought some of you would be interested in who's buying back shares.

The table below shows the % reduction in shares outstanding for the two previous six-month periods for the selected companies. I copied the shares outstanding from the Sep05 and Mar06 issues of TSX e-Review magazine. The Sep06 numbers are from www.TSX.com

If companies have multiple share classes, I either added the numbers together or weighted the classes by the trading price. Some classes appear to be unlisted. In that case, I either copied the additional number of shares from the quarterly report or just used the one class listed.

I multiplied the Sep05 and Mar06 numbers by 0.915 for BCE.

Suggestions/corrections are appreciated.

Code: Select all

Symbol   Name                           Sep/06  Mar/06
OCX-T    Onex Corporation                  5.5     1.3
ECA-T    EnCana Corp.                      4.9     0.2
BCE-T    BCE Inc.                          3.7     0.0
CNR-T    Canadian National Railway         2.8     2.1
T-T      TELUS                             2.6     1.7
IMO-T    Imperial Oil                      2.4     2.3
MFC-T    Manulife Financial                2.2     0.5
PCA-T    Petro-Canada                      2.1     1.2
IAG-T    Industrial Alliance Ins & Fin     2.1    -2.4
IPS-T    IPSCO Inc.                        1.9    -0.4
CP-T     Canadian Pacific Railway          1.5    -0.6
SLF-T    Sun Life Financial Inc.           1.4     0.4
ACO.X-T  ATCO Ltd.                         1.3    -0.1
CU-T     Canadian Utilities                1.1     0.0
NA-T     National Bank of Canada           1.0     0.8
TOC-T    Thomson Corporation               0.9     1.0
SAP-T    Saputo Inc.                       0.5     0.7
RY-T     Royal Bank of Canada              0.5     0.6
BMO-T    Bank of Montreal                  0.5    -0.4
TLM-T    Talisman Energy                   0.3     0.3
SNC-T    SNC-Lavalin Group                 0.1    -0.1
ATD.B-T  Alimentation Couche-Tard          0.0     0.0
CNQ-T    Canadian Natural Resources        0.0     0.0
EMP.A-T  Empire Company                    0.0     0.0
WN-T     George Weston Ltd.                0.0     0.0
GWO-T    Great-West Lifeco                 0.0     0.0
HSE-T    Husky Energy                      0.0     0.0
IGM-T    IGM Financial                     0.0     0.0
IIC-T    ING Canada                        0.0     0.0
PJC.A-T  Jean Coutu Group                  0.0     0.0
L-T      Loblaw Companies                  0.0     0.0
NVL-T    Novelis                           0.0     0.0
PWF-T    Power Financial Corp.             0.0     0.0
SHC-T    Shell Canada                      0.0     0.0
BAM.A-T  Brookfield Asset Management      -0.1     1.3
BNS-T    Bank of Nova Scotia              -0.1     0.7
ABX-T    Barrick Gold Corp.               -0.1   -60.7
GNA-T    Gerdau AmeriSteel                -0.2    -0.1
TRP-T    TransCanada Corp.                -0.2    -0.1
SBY-T    Sobeys Inc.                      -0.2    -0.2
POW-T    Power Corp of Canada             -0.2    -0.3
SU-T     Suncor Energy                    -0.2    -0.3
POT-T    Potash Corp. of Saskatchewan     -0.3     3.6
MG.A-T   Magna International              -0.3    -0.1
MRU.A-T  Metro Inc.                       -0.3    -0.1
SC-T     Shoppers Drug Mart               -0.3    -0.2
CM-T     CIBC                             -0.3    -0.3
NXY-T    Nexen                            -0.3    -0.3
CTC.A-T  Canadian Tire Corporation        -0.4     0.8
ENB-T    Enbridge                         -0.5    -0.3
AGU-T    Agrium                           -0.6     2.1
AL-T     Alcan Inc.                       -0.6    -0.9
TD-T     TD Bank                          -0.8    -0.9
TA-T     TransAlta Corp.                  -0.9    -1.0
FTT-T    Finning International            -1.1     0.0
TCK.B-T  Teck Cominco Ltd.                -5.8    -0.4
Taggart
Veteran Contributor
Veteran Contributor
Posts: 6893
Joined: 05 Dec 2005 07:34

Post by Taggart »

Payouts the fashion in world awash in liquidity

Peter Koven, Financial Post

Published: Monday, December 18, 2006
DenisD
Veteran Contributor
Veteran Contributor
Posts: 4081
Joined: 19 Feb 2005 01:24
Location: Calgary

Post by DenisD »

Time for the spring refresh of my Canadian large-cap screen.

One of the inputs to the screen is the % of shares bought back over the previous year. I thought some of you would be interested in who's buying back shares.

The table below shows the % reduction in shares outstanding for the two previous six-month periods for the selected companies. I copied the shares outstanding from the Mar06 and Sep06 issues of TSX e-Review magazine. The Mar07 numbers are from www.TSX.com

If companies have multiple share classes, I either added the numbers together or weighted the classes by the trading price. Some classes appear to be unlisted. In that case, I either copied the additional number of shares from the quarterly report or just used the one class listed.

I multiplied the Mar06 numbers by 0.915 for BCE.

Suggestions/corrections are appreciated.

Code: Select all

Symbol   Name                           Mar/07  Sep/06
ECA-T    EnCana Corp.                      5.0     4.9
TLM-T    Talisman Energy                   4.3     0.3
AL-T     Alcan Inc.                        2.3    -0.6
CNR-T    Canadian National Railway         2.1     2.8
IMO-T    Imperial Oil                      2.1     2.4
ACO.X-T  ATCO Ltd.                         1.3     1.3
BCE-T    BCE Inc.                          1.2     3.7
T-T      TELUS                             1.1     2.6
PCA-T    Petro-Canada                      0.8     2.1
CP-T     Canadian Pacific Railway          0.6     1.5
NA-T     National Bank of Canada           0.6     1.0
OCX-T    Onex Corporation                  0.6     5.5
RY-T     Royal Bank of Canada              0.5     0.5
SJR.B-T  Shaw Communications               0.5     0.0
SAP-T    Saputo Inc.                       0.4     0.5
CTC.A-T  Canadian Tire Corporation         0.3    -0.4
SLF-T    Sun Life Financial Inc.           0.2     1.4
TD-T     TD Bank                           0.2    -0.8
TOC-T    Thomson Corporation               0.2     0.9
CU-T     Canadian Utilities                0.1     1.1
MFC-T    Manulife Financial                0.1     2.2
SNC-T    SNC-Lavalin Group                 0.1     0.1
EMP.A-T  Empire Company                    0.0     0.0
FTT-T    Finning International             0.0    -1.1
WN-T     George Weston Ltd.                0.0     0.0
HSE-T    Husky Energy                      0.0     0.0
IIC-T    ING Canada                        0.0     0.0
L-T      Loblaw Companies                  0.0     0.0
PWF-T    Power Financial Corp.             0.0     0.0
SHC-T    Shell Canada                      0.0     0.0
SBY-T    Sobeys Inc.                       0.0    -0.2
ATD.B-T  Alimentation Couche-Tard         -0.1     0.0
BMO-T    Bank of Montreal                 -0.1     0.5
GNA-T    Gerdau AmeriSteel                -0.1    -0.2
GWO-T    Great-West Lifeco                -0.1     0.0
IGM-T    IGM Financial                    -0.1     0.0
IPS-T    IPSCO Inc.                       -0.1     1.9
PJC.A-T  Jean Coutu Group (PJC)           -0.1     0.0
SU-T     Suncor Energy                    -0.1    -0.2
ABX-T    Barrick Gold Corp.               -0.2    -0.1
IAG-T    Industrial Alliance Ins & Fin    -0.2     2.1
NXY-T    Nexen                            -0.2    -0.3
TCK.B-T  Teck Cominco Ltd.                -0.2    -5.8
BAM.A-T  Brookfield Asset Management      -0.3    -0.1
CNQ-T    Canadian Natural Resources       -0.3     0.0
MG.A-T   Magna International              -0.3    -0.3
BNS-T    Bank of Nova Scotia              -0.4    -0.1
CM-T     CIBC                             -0.4    -0.3
MRU.A-T  Metro Inc.                       -0.5    -0.3
POW-T    Power Corp of Canada             -0.5    -0.2
SC-T     Shoppers Drug Mart               -0.5    -0.3
TA-T     TransAlta Corp.                  -0.6    -0.9
AGU-T    Agrium                           -1.0    -0.6
POT-T    Potash Corp. of Saskatchewan     -1.1    -0.3
ENB-T    Enbridge                         -4.5    -0.5
TRP-T    TransCanada Corp.                -9.5    -0.2
FinEcon
Veteran Contributor
Veteran Contributor
Posts: 1306
Joined: 03 Aug 2005 13:41

Post by FinEcon »

DenisD, I assume that ING Canada IIC-T in your list doesn't have it's rather large share buyback shown becasue it was announced rather recently (or maybe the shares have yet to be cancelled?) and just missed out by a few days/weeks. However, given the size of the buyback, it's deserves mention.

http://www.newswire.ca/en/releases/arch ... c7367.html

I am somwhat puzzled as the buyback of nearly ~7% of outstanding shares as of the end of March (can't remember the exact date) yet there has been no price change in response to this announcement.....or any other 'news'. Anyhoo, I am tickeld pink that the issue was so successful, tax free payouts in my mind.
randomwalker
Veteran Contributor
Veteran Contributor
Posts: 2392
Joined: 14 Apr 2005 20:55

Post by randomwalker »

FinEcon wrote:I am somwhat puzzled as the buyback of nearly ~7% of outstanding shares as of the end of March (can't remember the exact date) yet there has been no price change in response to this announcement.....or any other 'news'. Anyhoo, I am tickeld pink that the issue was so successful, tax free payouts in my mind.
The press release from ING Canada states,

"ING Groep, the principal shareholder of ING Canada, participated in the issuer bid by making a proportionate tender and is expected to maintain its equity participation at 70%."

When I looked at the insider trading data it would seen of the 9,259,239 shares that ING Canada is buying back at $54 some 6,482,006 shares were purchased back from the parent company ING Groep N.V.

ING Canada hasn't traded as high as $54 since early December of last year. I'm off to re-read the definition of a "Dutch Auction."
DenisD
Veteran Contributor
Veteran Contributor
Posts: 4081
Joined: 19 Feb 2005 01:24
Location: Calgary

Post by DenisD »

FinEcon wrote:DenisD, I assume that ING Canada IIC-T in your list doesn't have it's rather large share buyback shown becasue it was announced rather recently (or maybe the shares have yet to be cancelled?) and just missed out by a few days/weeks.
The number of shares on www.tsx.com for ING Canada has now gone down. But too late for me this time around. I'll probably be buying some IIC-T in six months.
User avatar
kcowan
Veteran Contributor
Veteran Contributor
Posts: 16033
Joined: 18 Apr 2006 20:33
Location: Pacific latitude 20/49

IRS Plugs Tax Loophole

Post by kcowan »

WSJ wrote:The Internal Revenue Service moved to shut a corporate tax loophole last week, just two days after International Business Machines Corp. used it to save an estimated $1.6 billion, according to a person familiar with the transaction.

On May 29, IBM said it had structured a $12.5 billion stock repurchase to take advantage of funds it earned overseas without making them subject to U.S. corporate tax rates. Tax attorneys call such deals "Killer B" transactions because they are designed to circumvent IRS section 367 B covering U.S. taxes on repatriated earnings.
WSJ wrote:In the complex deal, IBM created a Netherlands unit to finance the stock repurchase with overseas earnings and avoid having to repatriate funds, which would make them subject to higher U.S. taxes.

IBM said it bought 118.8 million of its shares at $105.18 apiece from three investment banks
NYT wrote:Recently, I.B.M. has been spending about $100 million a day buying its own shares on the open market.

Now, I.B.M. has contracted with three banks to buy $12.5 billion worth of its stock — 8 percent of all outstanding shares.

Of the $12.5 billion, I.B.M. paid $1 billion in cash and borrowed the rest through an international subsidiary. Using the international subsidiary permits I.B.M. to use cash generated overseas on buyback efforts without paying the taxes that would be incurred if the company first “repatriated” the money to its coffers.

The $11.5 billion in new debt would seem a significant liability. I.B.M. owed $23.9 billion at the end of the first quarter and had $10.8 billion in cash and short-term investments on hand.
Just like a big chess game. When the big players make a move, the IRS reacts.
For the fun of it...Keith
User avatar
Bylo Selhi
Veteran Contributor
Veteran Contributor
Posts: 29493
Joined: 16 Feb 2005 10:36
Location: Waterloo, ON
Contact:

Re: IRS Plugs Tax Loophole

Post by Bylo Selhi »

kcowan wrote:When the big players make a move, the IRS reacts.
It ain't over until the fat ladyauditor sings GAAR.
Over the last 45 years, a variety of techniques to get around the rule have been put forth by accounting firms, but the shelters are typically demolished by the I.R.S. once it learns about them... I.B.M.’s transaction, and any others, would be vulnerable in an audit because of a principle known as economic substance. Transactions that do nothing but eliminate taxes are disregarded if tax auditors discover them.
Sedulously eschew obfuscatory hyperverbosity and prolixity.
WishingWealth
Veteran Contributor
Veteran Contributor
Posts: 6701
Joined: 27 Feb 2005 10:53

Post by WishingWealth »

From USA Today.

Stock buybacks are a good thing, right?
...
Divert money that could be invested in the business. Money used to buy back stock can't be invested in expansion and new products. In 2000, companies spent 200% more on capital expenditures than on buybacks, S&P says. But last year capital spending outstripped buybacks by only 17%. "The fact buybacks are anywhere in the neighborhood of capital spending is amazing," Howard Silverblatt of S&P says.

But some companies, such as J&J, are so awash in cash, even after spending heavily on research and development, that buybacks are a good option, says Doug Christopher, analyst at Crowell Weedon.

Still, investors can't help but wonder if companies can't find a better way to deploy cash, says William Maxwell, professor of finance at the University of Arizona. "If this is a growth-type firm, and it's buying back stock, you're scratching your head," he says.
This has always been a head sctacher for me too.

WW
User avatar
AltaRed
Veteran Contributor
Veteran Contributor
Posts: 33398
Joined: 05 Mar 2005 20:04
Location: Ogopogo Land

Post by AltaRed »

WishingWealth wrote:This has always been a head sctacher for me too.
Why? If growth for growth's sake would result in a material reduction in return to the shareholder because of chasing diminishing returns, then I would much rather the company return the value to me so that I have the opportunity to redeploy the money, foolishly or otherwise, in investments of my own choice.
User avatar
scomac
Veteran Contributor
Veteran Contributor
Posts: 7788
Joined: 19 Feb 2005 09:47
Location: The Gateway to Wine Country

Post by scomac »

AltaRed wrote: Why? If growth for growth's sake would result in a material reduction in return to the shareholder because of chasing diminishing returns, then I would much rather the company return the value to me so that I have the opportunity to redeploy the money, foolishly or otherwise, in investments of my own choice.
I agree completely. That's a question I'd like honestly answered by some of the senior mining executives that are involved in the current rash of M&A activity. Is it (acquisition) going to be accretive over the full cycle or are you simply engaging in growth for growth's sake because you don't know what else to do with all the cash on the books?
"On what principle is it, that when we see nothing but improvement behind us, we are to expect nothing but deterioration before us?"
Thomas Babington Macaulay in 1830
User avatar
Gus
Veteran Contributor
Veteran Contributor
Posts: 2311
Joined: 11 Mar 2005 13:01
Location: Salt Spring Island, BC

Post by Gus »

AltaRed wrote:
WishingWealth wrote:This has always been a head sctacher for me too.
Why? If growth for growth's sake would result in a material reduction in return to the shareholder because of chasing diminishing returns, then I would much rather the company return the value to me so that I have the opportunity to redeploy the money, foolishly or otherwise, in investments of my own choice.
Sure. But why not return the money as an extraordinary dividend, instead of indirectly through capital gains as a buy-back? That way, long-term investors would get a fair return (suitably tax-advantaged in most provinces), whereas holders of stock options (managers who have been unable to find growth opportunities) would see nothing.

OK, I think I have answered my own question.... :wink:
DenisD
Veteran Contributor
Veteran Contributor
Posts: 4081
Joined: 19 Feb 2005 01:24
Location: Calgary

Post by DenisD »

The Buyback Bonanza Grows
The S&P 500 once again burst through its previous record for stock buybacks among its component companies, with second-quarter buybacks rising to almost $158 billion.

...

The buying spree has continued for 11 quarters so far for a grand total of $1.12 trillion in buybacks...a huge, huge number. For comparison, the entire market capitalization of the S&P 500 is only about $13.3 trillion.

What else are companies doing with their money? Well, companies have spent $1.24 trillion on capital expenditures and paid out $594 billion in dividends over the same 11-quarter time frame. The 12-month dividend and buyback yield was at 5.43%.
User avatar
scomac
Veteran Contributor
Veteran Contributor
Posts: 7788
Joined: 19 Feb 2005 09:47
Location: The Gateway to Wine Country

Post by scomac »

DenisD wrote:The Buyback Bonanza Grows
The 12-month dividend and buyback yield was at 5.43%.
Is there a resource available that indicates the true yield (dividends+buybacks) of major indecies on an historical basis? I'm assuming that in past eras, the use of share buybacks wasn't nearly as prevalent as today in which case the true yield would be a more representative measure of the relative value of stocks vs. bonds.
"On what principle is it, that when we see nothing but improvement behind us, we are to expect nothing but deterioration before us?"
Thomas Babington Macaulay in 1830
pitz
Veteran Contributor
Veteran Contributor
Posts: 2878
Joined: 27 Oct 2005 18:41
Location: Canada/Costa Rica

Post by pitz »

I wasn't an investor in the 70s -- but were buybacks even allowed back then?

5.8% is an amazingingly high dividend yield on something we all know and at least, historically have had a great deal of trust in (the S&P500 index).
DenisD
Veteran Contributor
Veteran Contributor
Posts: 4081
Joined: 19 Feb 2005 01:24
Location: Calgary

Post by DenisD »

From last week's Barron's:

Buyback vs. Payout
COULD DIVIDENDS ONE DAY GO the way of the dinosaur?

Douglas J. Skinner, a professor of accounting at the University of Chicago Graduate School of Business, thinks it's possible. In a recent study entitled "The Evolving Relation between Earnings, Dividends and Stock Repurchases," Skinner surveys the determinants of corporate payout policy and compares the merits of stock buybacks with those of cash dividends.
Skinner's paper available at:
http://papers.ssrn.com/sol3/papers.cfm? ... _id=906853
DenisD
Veteran Contributor
Veteran Contributor
Posts: 4081
Joined: 19 Feb 2005 01:24
Location: Calgary

Post by DenisD »

Time for the fall refresh of my Canadian large-cap screen.

One of the inputs to the screen is the % of shares bought back over the previous year. I thought some of you would be interested in who's buying back shares.

The table below shows the % reduction in shares outstanding for the two previous six-month periods for the selected companies. I copied the shares outstanding from the Mar07 and Sep06 issues of TSX e-Review magazine. The Sep07 numbers are from www.TSX.com

If companies have multiple share classes, I either added the numbers together or weighted the classes by the trading price. Some classes appear to be unlisted. In that case, I either copied the additional number of shares from the quarterly report or just used the one class listed.

Suggestions/corrections are appreciated.

Code: Select all

Symbol   Name                           Sep/07  Mar/07
IIC.TO   ING Canada                        6.9     0.0
MX.TO    Methanex Corp.                    4.7     2.7
TLM.TO   Talisman Energy                   2.9     4.3
IMO.TO   Imperial Oil                      2.9     2.1
MBT.TO   Manitoba Telecom Services         2.8     2.4
ECA.TO   EnCana Corp.                      2.7     5.0
NA.TO    National Bank of Canada           2.4     0.6
MFC.TO   Manulife Financial                2.4     0.1
CNR.TO   Canadian National Railway         2.2     2.1
PCA.TO   Petro-Canada                      2.0     0.8
T.TO     TELUS Corp.                       1.8     1.1
OCX.TO   Onex Corporation                  1.6     0.6
CP.TO    Canadian Pacific Railway          1.5     0.6
BNS.TO   Bank of Nova Scotia               1.1    -0.4
SLF.TO   Sun Life Financial Inc.           0.9     0.2
SAP.TO   Saputo Inc.                       0.8     0.4
CM.TO    CIBC                              0.8    -0.4
ACO-X.TO ATCO Ltd.                         0.7     1.3
BMO.TO   Bank of Montreal                  0.5    -0.1
BCE.TO   BCE Inc.                          0.4     1.2
SJR-B.TO Shaw Communications               0.4     0.5
BPO.TO   Brookfield Properties             0.4   -14.4
TD.TO    TD Bank                           0.3     0.2
IGM.TO   IGM Financial                     0.3    -0.1
CU.TO    Canadian Utilities                0.3    -0.2
FFH.TO   Fairfax Financial Holdings        0.2     0.0
BAM-A.TO Brookfield Asset Management       0.1    -0.3
EMP-A.TO Empire Company                    0.0     0.0
WN.TO    George Weston Ltd.                0.0     0.0
HSE.TO   Husky Energy                      0.0     0.0
PWF.TO   Power Financial Corp.             0.0     0.0
GWO.TO   Great-West Lifeco                 0.0    -0.1
POW.TO   Power Corp of Canada              0.0    -0.5
RY.TO    Royal Bank of Canada             -0.1     0.5
TOC.TO   Thomson Corp.                    -0.1     0.2
GNA.TO   Gerdau AmeriSteel                -0.1    -0.1
CNQ.TO   Canadian Natural Resources       -0.1    -0.3
MRU-A.TO Metro Inc.                       -0.1    -0.5
ABX.TO   Barrick Gold Corp.               -0.2    -0.2
TA.TO    TransAlta Corp.                  -0.2    -0.6
SNC.TO   SNC-Lavalin Group                -0.3     0.1
FTT.TO   Finning International            -0.3     0.0
ATD-B.TO Alimentation Couche-Tard         -0.3    -0.1
SU.TO    Suncor Energy                    -0.3    -0.1
NXY.TO   Nexen Inc.                       -0.3    -0.2
POT.TO   Potash Corp. of Saskatchewan     -0.3    -1.1
ENB.TO   Enbridge Inc.                    -0.3    -4.5
AXC.TO   Addax Petroleum                  -0.4    -0.1
CCO.TO   Cameco Corp.                     -0.4    -0.2
IAG.TO   Industrial Alliance Ins & Fin    -0.4    -0.2
RCI-B.TO Rogers Communications            -0.6    -0.5
SC.TO    Shoppers Drug Mart               -0.6    -0.5
TRP.TO   TransCanada Corp.                -0.6    -9.5
PJC-A.TO Jean Coutu Group (PJC)           -0.8    -0.1
AL.TO    Alcan Inc.                       -1.6     2.3
CTC-A.TO Canadian Tire Corporation        -1.8     0.3
TCK-B.TO Teck Cominco Ltd.                -1.9    -0.2
MG-A.TO  Magna International              -7.6    -0.3
Small Investor Activist
Contributor
Contributor
Posts: 851
Joined: 17 Jun 2005 23:36

Post by Small Investor Activist »

Buying back shares burdens companies with debt and interest costs.


How do share buybacks benefit the retail and long term investors :?:
User avatar
Bylo Selhi
Veteran Contributor
Veteran Contributor
Posts: 29493
Joined: 16 Feb 2005 10:36
Location: Waterloo, ON
Contact:

Post by Bylo Selhi »

Happy Days wrote:Buying back shares burdens companies with debt and interest costs.
Not if they use profits to fund the buybacks. Shouldn't cost them anything and presumably prevents their executives from squandering those profits on building some new empire.
How do share buybacks benefit the retail and long term investors
If the bought-back shares are cancelled then then the number of outstanding shares is reduced, hence earnings per share goes up as does eventually the NAV. This is one way to make a distribution to shareholders that, unlike a dividend payment, is 100% tax-deferred.

(Of course it's not quite so beneficial to other shareholders when the company enters into debt in order to buy shares at inflated prices in order to satisfy the exercise of executive stock options.)
Sedulously eschew obfuscatory hyperverbosity and prolixity.
User avatar
Peculiar_Investor
Administrator
Administrator
Posts: 13267
Joined: 01 Mar 2005 14:52
Location: Calgary
Contact:

Post by Peculiar_Investor »

Happy Days wrote:Buying back shares burdens companies with debt and interest costs.


How do share buybacks benefit the retail and long term investors :?:
Buybacks reduce the number of shares outstanding (or offset the effect of dilution due to stock options) and therefore increase EPS.
Imagefiniki, the Canadian financial wiki New editors wanted and welcomed, please help collaborate and improve the wiki.

Normal people… believe that if it ain’t broke, don’t fix it. Engineers believe that if it ain’t broke, it doesn’t have enough features yet. – Scott Adams
User avatar
parvus
Veteran Contributor
Veteran Contributor
Posts: 10014
Joined: 20 Feb 2005 16:09
Location: Waiting for the real estate meltdown on Rua Açores.

Post by parvus »

Picking winners, byte by byte
Consider his "New Dogs Screen." Back in 1991, Michael O'Higgins' book, Beating the Dow, popularized the strategy of buying the 10 Dow stocks with the highest dividend yields - the so-called "dogs of the Dow." But Mr. Hough takes the strategy a step further by adding share buybacks to the equation.

Why? Because a 2004 paper published in the Journal of Finance showed that companies with a combination of high dividend yields and large net share repurchases - in other words, those that return a lot of cash to shareholders - outperformed the market by an even wider margin than those with high dividend yields alone. (You can see results of The New Dogs Screen in the accompanying table; the "net payout yield" represents cash spent on dividends and buybacks over the past year, divided by the company's market value.)
Rising dividends are great – with the right intentions
We love dividends. When we're having a bad day, nothing warms our soul like a juicy dividend increase.

We're shallow that way.

But not so shallow that we can't tolerate some dissension from people who actually have the temerity to argue that dividend increases maybe aren't the best use of a company's capital. And then these same people have the nerve to back up their case with cold, hard facts.

When we looked at the title of the Thomson Financial report – “Baby, we got your dividend: What company actions do investors reward most?” – we were certain it would offer a ringing endorsement of our favourite investing strategy: Buying shares of companies that increase their dividends.

So imagine our shock when the report told a different story. As you'll see, it doesn't suggest that dividend increases, per se, are a bad thing, but it does indicate that investors should pay attention to more than just the amount of cash companies pay out to shareholders, for dividend hikes can sometimes be a smokescreen for companies that are digging themselves into a hole.

The Thomson Financial study was a comprehensive one. It examined the stock market performance of S&P 500 companies going back to 1990. In addition to noting whether the company increased its dividend in any given year, it looked at whether debt and cash levels were rising or falling, and also examined the payout ratio (dividends as a percentage of profit). A payout ratio that's too high indicates that a company is having to stretch to keep the dividend cheques flowing, while a low payout ratio indicates room for the dividend to grow.

One of the key findings of the study was this: Companies that decreased their debt, increased their cash, had a payout ratio of less than 60 per cent and did not increase their dividend performed best when measured over 12-month periods following the filing of their year-end results. This group posted an average annual gain of 7.2 per cent.

The worst performance was from companies that increased their debt, decreased cash and raised their dividend. On average, these stocks fell 5.1 per cent. In other words, a rising dividend doesn't guarantee that a stock will outperform. In some cases, it might even signal the opposite.

But why? Isn't a rising dividend supposed to be a sign of financial strength?

Usually, but not always.

“It's not just the dividend, it's how you fund the dividend,” says Michael Thompson, managing director of Thomson Proprietary Research. “If a company is going into debt to pay dividends, it's not really a good sign.”
Wovon man nicht sprechen kann, darüber muß man schweigen — a wit
Imagefiniki, the Canadian financial wiki Your go-to guide for financial basics
Image
ABCAC
Contributor
Contributor
Posts: 117
Joined: 07 Feb 2008 20:58

Post by ABCAC »

MTR = 46%
100$ of dividends = 100$ * 145% * (46% - 19%) = 39.15$
100$ of capital gains = 100$ * 50% * 46% = 23$

This suggests that dividends are taxed more than capital gains.

The marginal tax rate where dividends become more efficient less than or equal to 29%.

To me it seems like companies that buy back shares instead of paying a dividend are doing a service to the wealthier shareholders. Very simple reasoning can justify this, such as in general the majority of shareholders are taxed at high MTRs or that company that owns a 20% share would be real upset with me otherwise.

(corporations are taxed at the highest MTR right ?)
JungleGuy
Contributor
Contributor
Posts: 40
Joined: 30 Jul 2007 13:11

Post by JungleGuy »

The 19% is only the federal tax credit. For BC, it's another 12% (Ontario 6.7%).

100$ of dividends = $100 * 145% * (46% - 19% - 12%) = $21.75
User avatar
IdOp
Veteran Contributor
Veteran Contributor
Posts: 3873
Joined: 16 Feb 2006 11:27
Location: On the Pacific sea bed, 100 mi off the CA coast.
Contact:

Post by IdOp »

See also discussion in this thread.
DenisD
Veteran Contributor
Veteran Contributor
Posts: 4081
Joined: 19 Feb 2005 01:24
Location: Calgary

Post by DenisD »

Time for the spring refresh of my Canadian large-cap screen.

One of the inputs to the screen is the % of shares bought back over the previous year. I thought some of you would be interested in who's buying back shares.

The table below shows the % reduction in shares outstanding for the two previous six-month periods for the selected companies. I copied the shares outstanding from the Sep07 and Mar07 issues of TSX e-Review magazine. The Mar08 numbers are from www.TSX.com

If companies have multiple share classes, I either added the numbers together or weighted the classes by the trading price. Some classes appear to be unlisted. In that case, I either copied the additional number of shares from the quarterly report or just used the one class listed.

Suggestions/corrections are appreciated.

Code: Select all

Symbol   Name                           Mar/08  Sep/07
PJC-A.TO Jean Coutu Group (PJC)            5.9    -0.8
FTT.TO   Finning International             3.7    -0.3
CNR.TO   Canadian National Railway         3.5     2.2
MX.TO    Methanex Corp.                    3.2     4.7
MG-A.TO  Magna International               2.8    -7.9
CCO.TO   Cameco Corp.                      2.7    -0.4
IMO.TO   Imperial Oil                      2.4     2.9
T.TO     TELUS Corp.                       2.4     1.8
OCX.TO   Onex Corporation                  2.1     1.6
MRU-A.TO Metro Inc.                        2.1    -0.1
ATD-B.TO Alimentation Couche-Tard          1.6    -0.3
MFC.TO   Manulife Financial                0.9     2.4
TA.TO    TransAlta Corp.                   0.9    -0.2
PCA.TO   Petro-Canada                      0.7     2.0
SLF.TO   Sun Life Financial Inc.           0.7     0.9
BPO.TO   Brookfield Properties             0.5     0.4
ACO-X.TO ATCO Ltd.                         0.4     0.7
SNC.TO   SNC-Lavalin Group                 0.4    -0.3
TOC.TO   Thomson Corp.                     0.2    -0.1
POT.TO   Potash Corp. of Saskatchewan      0.2    -0.3
ECA.TO   EnCana Corp.                      0.1     2.7
SJR-B.TO Shaw Communications               0.1     0.4
CU.TO    Canadian Utilities                0.1     0.3
IGM.TO   IGM Financial                     0.1     0.3
IIC.TO   ING Canada                        0.0     6.9
TLM.TO   Talisman Energy                   0.0     2.9
MBT.TO   Manitoba Telecom Services         0.0     2.8
ELF.TO   E-L Financial Corporation         0.0     0.0
WN.TO    George Weston Ltd.                0.0     0.0
HSE.TO   Husky Energy                      0.0     0.0
L.TO     Loblaw Companies                  0.0     0.0
PWF.TO   Power Financial Corp.             0.0     0.0
AXC.TO   Addax Petroleum                   0.0    -0.4
RCI-B.TO Rogers Communications             0.0    -0.6
CTC-A.TO Canadian Tire Corporation         0.0    -1.8
BCE.TO   BCE Inc.                         -0.1     0.4
CNQ.TO   Canadian Natural Resources       -0.1    -0.1
SC.TO    Shoppers Drug Mart               -0.1    -0.6
CP.TO    Canadian Pacific Railway         -0.2     1.5
BAM-A.TO Brookfield Asset Management      -0.2     0.1
GWO.TO   Great-West Lifeco                -0.2     0.0
ENB.TO   Enbridge Inc.                    -0.2    -0.3
IAG.TO   Industrial Alliance Ins & Fin    -0.2    -0.4
BNS.TO   Bank of Nova Scotia              -0.3     1.1
SAP.TO   Saputo Inc.                      -0.3     0.8
TD.TO    TD Bank                          -0.3     0.3
NXY.TO   Nexen Inc.                       -0.3    -0.3
SU.TO    Suncor Energy                    -0.3    -0.3
NA.TO    National Bank of Canada          -0.4     2.4
EMP-A.TO Empire Company                   -0.4     0.0
TCK-B.TO Teck Cominco Ltd.                -0.4    -1.9
POW.TO   Power Corp of Canada             -0.6     0.0
ABX.TO   Barrick Gold Corp.               -0.7    -0.2
TRP.TO   TransCanada Corp.                -0.7    -0.6
BMO.TO   Bank of Montreal                 -1.0     0.5
RY.TO    Royal Bank of Canada             -1.4    -0.1
FFH.TO   Fairfax Financial Holdings       -5.2     0.2
CM.TO    CIBC                            -13.7     0.8
GNA.TO   Gerdau AmeriSteel               -41.4    -0.1
Post Reply