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.
A few ways you can invest in companies that participate in share buyback programs is with Exchange Traded Funds. Start by looking at…
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