Daily Gains Letter

share buyback

Profit from Share Buybacks with This ETF

By for Daily Gains Letter | May 9, 2013

Share Buybacks with This ETFIn the fourth quarter of 2012, companies on key stock indices purchased $93.8 billion worth of their own shares back from investors. This represented an increase of 9.6% compared to the same period in the prior year. For the entire year of 2012, companies spent $384.3 billion to buy back their shares. (Source: “S&P 500 buyback activity flat quarter-over-quarter,” FactSet, April 3, 2013, last accessed May 8, 2013.)

This year looks to be the same—companies on key stock indices are announcing share buybacks. For example, International Business Machines Corporation (NYSE/IBM) authorized another $5.0 billion to its share repurchase program already in place. Adding this amount brings its total buyback program to be valued at $11.2 billion. (Source: Crum, R., “IBM adds $5 billion to buyback plan, ups dividend,” MarketWatch, April 30, 2013, last accessed May 8, 2013.)

Similarly, Apple Inc. (NASDAQ/AAPL) added a massive amount to its buyback program that’s already in place. The company announced it will add $50.0 billion to its share repurchase program, which previously had $10.0 billion in it, bringing its total value to $60.0 billion. Apple plans to complete this buyback operation by 2015. (Source: Rogowsky, M., “Apple’s $50 Billion Buyback Won’t Dent its War Chest,” Forbes, April 26, 2013.)

Some may say buying back shares is like financial engineering. This means that as the companies purchase their own shares back, they don’t necessarily have to earn more to show an increase in their profitability. Consider this scenario: if a company earns $10,000 and has 100,000 shares outstanding, then its earnings per share (EPS) would be $0.10 per share. Now, let’s suppose it purchases 10,000 … Read More