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Hub You - The Power of Stock Buybacks
As the postcard marketing industry continues to evolve, more marketers turn to the medium as a way to drive business and increase revenues. But postcard marketing can be tough. It's a numbers game, and at every point in the process you stand to lose a percentage of your audience.To get the most from your postcard marketing, you need to minimize this "attrition" by optimizing your technique. Ever
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Stock buyback is a program where a company use its cash to buy back its own stock at an open market. The purpose is to reduce the amount of shares outstanding and thus causing the remaining shares to be more valuable. Company initiating a stock buyback program will be able to grow revenue more rapidly and afford to pay bigger dividends. Let's use an example to illustrate. Ready? Please write it down on a piece of paper if you must.
Company A is trading at $ 20 per share with 100 Million of shares outstanding. It earns $ 2 per share at recent years and it is giving out $ 1 per share of dividends. If you do the math, this translates into $ 200 Million of annual profit and $ 100 Million of dividend payments. Now, let's assume that company A is distributing all its profit to shareholders. With $ 100 Million used for dividend payment, management decide to use the rest of $ 100 Million to buy back its own shares. Meanwhile, the company manages to grow its profit by 5% in the following year to $ 210 Million. What is the effect of the buyback? The following table will illustrate. (The table can be viewed at http://www.noviceinvesting.com/Resea
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Company A is trading at $ 20 per share with 100 Million of shares outstanding. It earns $ 2 per share at recent years and it is giving out $ 1 per share of dividends. If you do the math, this translates into $ 200 Million of annual profit and $ 100 Million of dividend payments. Now, let's assume that company A is distributing all its profit to shareholders. With $ 100 Million used for dividend payment, management decide to use the rest of $ 100 Million to buy back its own shares. Meanwhile, the company manages to grow its profit by 5% in the following year to $ 210 Million. What is the effect of the buyback? The following table will illustrate. (The table can be viewed at http://www.noviceinvesting.com/Rese
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Company A is trading at $ 20 per share with 100 Million of shares outstanding. It earns $ 2 per share at recent years and it is giving out $ 1 per share of dividends. If you do the math, this translates into $ 200 Million of annual profit and $ 100 Million of dividend payments. Now, let's assume that company A is distributing all its profit to shareholders. With $ 100 Million used for dividend payment, management decide to use the rest of $ 100 Million to buy back its own shares. Meanwhile, the company manages to grow its profit by 5% in the following year to $ 210 Million. What is the effect of the buyback? The following table will illustrate. (The table can be viewed at http://www.noviceinvesting.com/Rese
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Naturally, homepage of a website is the most visited page of any website. This homepage can be compared to the center point of your business. Keeping this in mind, you have to prepare your homepage with utmost care.The content in a homepage of website is very important in deciding the success of that website. If you have enough content in your website which can attract visitors to your mainstrea
Looking at the result, stock buyback obviously increases the growth in earning per share. In an actual basis, earning grew from $ 200 Million to $ 210 Million, or a 5 % growth rate. Earning Per Share (EPS) however, grew at a much faster rate. It grew from $ 2.00 to $ 2.21 representing a 10.5 % growth rate. Meanwhile, dividend payment shrank due to the shrinking number of shares outstanding. The company still gives $ 1 per share dividend but it costs them $ 5 Million less now.
Do it over a longer time frame and the EPS increase will be much larger, assuming that the stock price remains stagnant at $ 20 per share.
There is several lessons that we can learn from stock buyback. One is that investors won't have to worry if the stock price remains stagnant. The company can keep buying back its shares, reduce its share count and increase Earning Per Share even faster.
The second lesson is that stock buy back will reduce the cost of distributing dividends. As less shares are available, the company can afford to increase it
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