Friday, December 16, 2011

Buybacks and Dividend Growth

There is a lively discussion on one of the front-page stories on SeekingAlpha about whether buybacks destroy value. As in my previous posts, I am on the fence regarding this one. It really varies on a case to case basis depending on where the money is coming from (some buybacks are highly leveraged and some special dividends come from debt issuance) and where it could have gone instead. It was surprising to see at least one investigation seemingly indicating that Buyback Achievers trump Dividend Achievers by a considerable margin. In terms of the intersection between PKW (PowerShare Buyback Achievers ) and PFM (PowerShares Dividend Achievers), it is only 12 companies: IBM, TGT, WAG, CB, FDO, WMT, GWW, CTAS, TJX, SFG, CASY, LOW. This group outperformed both PKW and PFM over a 1 year time frame. So, anecdotally, a combination of buybacks and dividends coincide with outperformance. Of course, there may be a number of confounding factors that may affect this.

"My Portfolio" consists of the 12 enumerated companies.

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