Walmart Reminds Us Buyback Programs Aren't Dead

Now that the economy is less rosy looking than a year or two ago, fewer company executives report or discuss share-buyback programs.

However, in the most recent quarterly earnings report from Walmart (WMT) we got just that, a big, new buyback announcement. Wal-Mart announced a new $20 billion share buyback program, and it should be noted that Walmart is currently just a $400 billion company.

While on the surface, a 5% buyback amount may not seem like a lot, if you dig deeper into Walmart, that 5% buyback, in reality, turns into a 10% buyback based on today's market capitalization. The reason is the Walton family and family trust and foundation control a little more than half of all Walmart shares.

While the family and its Foundation do sell stock from time to time, they have never sold a sizable enough amount to really move the needle. Thus, it is likely that the $20 billion buyback Walmart announced will be purchasing shares not owned by the Walton family and therefore coming from the stock trading on the open market, which is less than 50% of shares outstanding.

Owning a stock like Walmart or, even better, AutoZone (AZO), which has repurchased around 85% of its stock since 1998, can increase the value of your portfolio over decades of ownership. This occurs even when the company you own operates in a boring, slow-growth, or even cyclical industry, like retail.

Now there is some debate about whether or not you would rather have a company you own buy back stock or pay you a larger dividend.

Some investors would instead take a more significant dividend so they can invest it in other stocks, while some investors would rather that money be used to buy back stock.

This is honestly one of those situations where it is more or less a personal decision on which way you would rather a company give you back part of the profits it earns. Continue reading "Walmart Reminds Us Buyback Programs Aren't Dead"

Stock Buybacks May Be Slowing, But Still At Record Levels

Stock buybacks are off their 2018 pace when corporate America spent over $800 billion in share repurchases, but they are still high based on historical figures. One estimate, based on where share buybacks have been during the first two-quarters of 2019 point to companies spending roughly $740 billion in 2019 on share repurchase. For comparison, in 2017 companies spent $519 billion, in 2016 there was $536 billion spent, and in 2015 $572 billion was spent rebuying shares.

There are several reasons share buybacks are hitting even lofty levels than in the past. One is the tax cuts that went into effect last year, another being the fact that we are now in the tenth year of a bull market. At this point in a market cycle, there is a combination of company management teams not wanting to make large capital expenditures and not having any large projects they feel are worth spending money on.

Typically, we see large expenditures taking place during the first few years of a bull market, or shortly after a recession has come to an end because this is when new opportunities present themselves to companies for many different reasons. It could be because that is when capital is cheap due to low-interest rates, weaker businesses are struggling from the recession, so the price to purchase them is low, and or there are ‘fire’ sales as the remains companies that failed during the recession are sold off piece by piece.

Regardless of the reasons why corporate America has decided this is the time to buy-back stock, the fact remains record amounts of money are being spent. The benefits of stock buybacks are highly debated, but one thing is for sure, and that’s when companies spend money on stock buybacks, their earnings per share figures usually look better, even if the business itself isn’t growing. This is because when you have fewer pieces of the pie to split, each piece of the pie gets a little bigger. So, even if we are headed towards a recession, buying companies that are purchasing large amounts of their stock will keep their earnings per share figures somewhat healthy in the short run. So, let’s take a look at a few different ETFs that focus on companies who are buying back their stock. Continue reading "Stock Buybacks May Be Slowing, But Still At Record Levels"