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.

Share Buybacks, Part 4

Taking a sampling of the 41 PKW Buyback Achievers I could find XBRL annual reports on, there are a number of interesting points. The mean buyback rate for 2010 was 7.3% of common stock shares outstanding (DEI). Given this data point, IBM's rate of buyback seems only a middling one. I would caution generalization from a single year's worth of data, but it does provide a little perspective. A particular high or low buyback rate does not mean much by itself. One has to consider where the money for the buybacks is coming from and how is the rest of the business doing.

Share Buybacks, Part 3

Following my previous discussions of share buybacks here and here, let's look into the distribution of the share counts for the PKW (Share Buyback Achievers ETF) components. The components of the Share Buyback Achievers exhibit significant diversity in outstanding shares. For this study, I used the outstanding share information from Yahoo Finance which appears to be a rough undiluted number. The mean, median, and standard deviation of share count are 242M, 81M, and 430M respectively. The component with the minimum number of shares outstanding in this fund is homebuilder NVR with a mere 4.98M shares out. Mega-retailer WMT has the most with 3.44B shares.

Share Buybacks, Part 2

In my last post on share buybacks, I started by breaking down the components of the Powershares Share Buyback Achievers ETF PKW. The fund PKW sports an average PE of 13, a yield of 0.78%, and a beta of 0.98. Over several periods, PKW outperformed SPY (with a bout of slight underperformance recently):

Share Buybacks, Part 1

I recently read an interesting article on SeekingAlpha about IBM's share buyback record. The article says that over the past 16 years, IBM has been able to half its outstanding share count, which Warren Buffett claims as one reason why he bought $10B worth. That got me thinking, there is at least one ETF focused on share buybacks, PKW PowerShares Buyback Achievers. The fund has 139 components. What is IBM's performance relative to the rest of these? The fund has only been around since 12/2006, but presumably the index (Mergent DRB) has been around a while longer. Some of the components include TGT, DTV, TWX, TJX, COH, AZO, and GPS at 4.77%, 13.4%, 4.99%, 4.82%, 9.11%, 10.62%, and 10.35% decrease in common stock shares outstanding from FY 2010 to FY 2011 respectively. From the SeekingAlpha article, IBM has bought back anywhere from 0.01% to 8.73% of shares in a single year. Stay tuned for more information on the share buyback data point.

This is the first post in a series. The next post is here.