Top Three Companies Maximizing Shareholders' Value with Buybacks
Understanding Share Buybacks and Their Impact
Stock buybacks can be an intriguing aspect for investors. Announcements of new share repurchase programs usually pique interest, but it’s essential to note that there’s a significant difference between announcing a program and executing it. Unlike dividends, companies are not obligated to purchase shares simply upon announcing a buyback. This flexibility leads many corporations to prefer buybacks as a means of returning capital to shareholders rather than opting for the more rigid structure of dividend payments.
Monitoring not just the announcements but the actual execution of buybacks is crucial for understanding a company's strategy. A helpful metric for this is the buyback yield, which represents the total shares repurchased relative to the company's market capitalization. In this article, we will highlight three companies that have boasted a buyback yield exceeding 10% in the past 12 months, reflecting a strong commitment to enhancing their earnings per share (EPS).
1. eBay Demonstrates Commitment with $3.3 Billion Repurchase
E-commerce leader eBay Inc (NASDAQ: EBAY) has achieved a noteworthy buyback yield of 10% over the last year, with a total expenditure of over $3.3 billion dedicated to repurchasing its shares. This action has led to a notable decrease in its outstanding share count. While this figure stands out in stark contrast to the S&P 500's less than 2% buyback yield during the same period, it is nonetheless below the company’s historical performance. Over a decade, eBay has consistently exhibited a commitment to returning capital through buybacks, maintaining an average yield of 12%.
The company has witnessed a steady increase in its buyback pace since mid-2023, although the current $3.3 billion is still significantly less than its peak of $8 billion reached in early 2022. In addition to buybacks, eBay has an attractive indicated dividend yield of 1.6%, following a recent announcement of a 7% increase in its quarterly dividend. This puts eBay slightly ahead of the broader S&P 500, which shows an indicated yield of 1.2%. Over the past year, eBay shares have garnered a substantial total return of nearly 42%.
2. Etsy’s Impressive 16% Buyback Yield Amidst Challenges
Etsy Inc (NASDAQ: ETSY) has a buyback yield of nearly 16%, a remarkable figure that positions it among the leaders of mid-cap or larger U.S. stocks in this metric. However, despite this impressive buyback yield, Etsy has not been able to prevent a decline in its stock price, which has dropped approximately 32% over the past year. This decline is surprising given the surge in Etsy's value during the pandemic, where it nearly multiplied tenfold between March 2020 and November 2021, accompanied by substantial revenue growth exceeding 100% during certain periods.
In light of its recent sluggish revenue growth—just a 1% increase reported last quarter—questions arise regarding the efficacy of its buybacks. While Etsy boasts over $1 billion in cash reserves, amounting to $315 million in operational cash flow last quarter, it leads investors to consider whether these buybacks are strategically wise. The decision to buy back shares could imply a reluctance to reinvest in the business, potentially slowing growth further. Yet, Etsy may view these buybacks as a tactical move in capital management, especially when considering the undervaluation of its stock. The company's ongoing investments in product discovery and user experience may require more favorable market conditions for significant returns.
3. Marathon Petroleum’s Aggressive Boost with 21% Buyback Yield
Marathon Petroleum Corp (NYSE: MPC) has been a front-runner in returning capital to its shareholders, boasting an extraordinary buyback yield exceeding 21% over the past 12 months. This figure is the highest among all large-cap stocks in the U.S. With a valuation of $43 billion, Marathon has spent approximately $9 billion on its share repurchase programs.
The company's dedication to returning capital is evidenced by its indicated dividend yield of 2.7%, which underscores its robust capital management strategy. This commitment to buybacks has been particularly evident in the last three years, during which Marathon has maintained an average annual buyback yield of 19%.
Despite facing a 21% decline over the past year, Marathon Petroleum has still delivered impressive total returns of over 89% in the last three years, showcasing the potential of sound corporate strategies in enhancing shareholder value.
Frequently Asked Questions
What is a buyback yield?
A buyback yield measures the total value of repurchased shares relative to a company's current market capitalization, indicating how much capital is returned to shareholders.
Which companies are known for high buyback yields?
Some prominent examples include eBay, Etsy, and Marathon Petroleum, each achieving remarkable buyback yields over the past year.
Why do companies prefer buybacks over dividends?
Buybacks offer companies greater flexibility in using their cash resources compared to the rigidity of dividend payments; companies are not obligated to execute buyback plans.
How can buybacks affect stock price?
Buybacks can help increase a company's stock price by reducing the number of outstanding shares, thereby potentially boosting earnings per share (EPS).
How can investors find out a company's buyback activity?
Investors can track a company's press releases, earnings reports, and financial statements, which often detail buyback programs and their financial implications.
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