Does Share Buyback Return Value to Shareholders?

There is a school of thought that companies engage in share buybacks to support the down side of its share price. This is good because it is returning back some of the cash back to the shareholder. Indirectly, it is supposed to help shareholder by returning value. So let us take a look at some examples.
As per Standard and Poor’s research published in December 2007, S&P500 index companies spent (three years preceding the published date):

  • USD 1.318 trillion on share buybacks;
  • USD 1.276 trillion on capital expenditures;
  • USD 0.376 trillion on research and development; and
  • USD 0.605 trillion on common dividends.

To put these numbers in perspective, around that time period, the entire market capitalization of the S&P 500 was approximately $14 trillion. I was under the impression that corporate America spends more in research and development. However, this observation tells me otherwise.

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Four Stocks with Sustainable Dividends

It is important that companies continue to raise it dividend year after year. In addition, it is also critical to make sure we understand that companies can sustain their dividends. Following are four companies that recently announced their quarterly results. Based on these results, it seems their dividends are covered and can be sustained.

Procter & Gamble Company (PG): The 4Q09 earning per share was $0.80 (vs. $0.84 in 3Q09).

  • The key highlight was reduced earnings on q-o-q and y-o-y basis (vs. $0.92 in 4Q08) and reduced revenue.
  • For year 2009, EPS increased by 17% to $3.64 (from $4.26). This increase is due to sale of Folger’s business unit.
  • Yearly dividend of $1.76/share is well covered with earnings. Payout ratio is at 41%.

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Demise of Dollar – Does it Affect Dividend Growth?

A quick and simple answer is, no it does not affect dividend growth if dividend investors understand what it really means.

Corporations pay dividends from the combination of profitability, cash flow, income, prudent money management, etc. With the current state of economy in United States (and other parts of the world) majority of the corporations are facing negative growth. In such a scenario where will dividend growth come from? In these challenging environment dividend investors need to look at the macro economic scenario and understand how it will play out in long haul over a period of next 10 years, 20 years, or 30 years.

We read a lot about demise of US dollar. At a very fundamental level, which country’s currency becomes a global currency will depend upon political maturity and economic stronghold at global level. continue reading rest of the article….

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