Friday, September 01, 2006
Stock buybacks & what it might mean
Here is an excerpt from the Wall Street Journal 8/27 by Scott Patterson:
"If businesses move to pay out more of their earnings, investors will reap a windfall. But corporations have increasingly been either hoarding their cash or using it to buy back shares. The rate of dividend increases has recently shown signs of slowing down, while share buybacks are surging, says Mr. Silverblatt of S&P.
In the second quarter, companies in the S&P 500 put more than $116 billion into buybacks, up 43% from a year ago. Dividend payouts were up 11.1% from last year, to $54.5 billion. "
Be afraid, very afraid. Look at all the stock buybacks from a lot of the major US companies. Most recently the $3 Billion buyback from Boeing. That is an important signal because it shows that companies don't want to invest, take on risk, or extra capacity. Why? Because they feel there is going to be a major economic slow down and are preparing accordingly. They are hunkering down for the winter my friends and so should you.
On the flip side this why being a shareholder of a stock can be advantageous. Buybacks & dividends are the benefit of being one and is the company's way of giving back and rewarding your investment.
Source: wsj.com, 8/27/2006