Highest 4-Week Corporate Buyback Average, Ever

Hi everyone, and happy Friday! 👋

This week, we hit the highest corporate buyback 4-week average in history. 🤯

So, how do buybacks work?

A company will buy back shares with excess cash to return capital to shareholders tax-efficiently. But it’s not as straightforward as a dividend.

While dividends are immediate outlays of cash to shareholders that trigger a taxable event, buybacks are when the company pays existing shareholders to buy back their own shares, cancel them, and ultimately reduce the number of shares outstanding. This means that the remaining shareholders own a larger stake in the company.

Like everything, buybacks have perceived pros and cons: 👇

Pros:

• Company Believes it is Undervalued: A buyback is essentially a company using cash to re-invest in itself at a certain implied valuation.

• Tax Implications: Buybacks are much more tax efficient than their counterpart, the dividend.

• Benefits Remaining Shareholders: By effectively canceling existing shares, the value of remaining shares should increase, assuming the market cap remains the same post-buyback.

Cons:

• Capital Allocation Alternatives: Some investors may be concerned that using cash to buy back shares instead of deploying this capital means the company has limited growth opportunities.

• Artificial Inflation of Management Incentives: Many targets are set for executives based on per-share metrics. Reducing the number of shares outstanding makes these targets easier to hit.

This brings us to the king of buybacks…

You guessed it… Apple. 🍎

Apple has generated over $100B in Cash from operations over the last three years and has bought back $77.55B (2023 YTD), $89.4B (2022), and $86B (2021). That is a remarkable wall of consistent demand for the stock that creates a steady buyer in the marketplace.

Looking for more ideas around buybacks? This list was put together with a shareholder yield that considers both dividends and buybacks:

Did you know? 👀 GRIT offers another daily, weekly, and monthly stock deep-dive newsletter, the GRIT Flagship! 🚀 Because you’re already in the GRIT fam, you’ll appreciate staying updated on the finance and business news that will impact your portfolio. Plus, with our GRIT VIP subscription, you’ll learn more about our monthly favorite stocks, access billionaire and famous investor portfolios, get exclusive investor resources, and so much more. 👇

See our past deep-dive winners:

1. January 10th, 2021: GRIT warned subscribers to avoid “buy-now-pay-later” lender Affirm’s IPO (AFRM-US).

 Stock is down -60% to $19/share (Oct 16th, 2023) from an IPO price of $49/share and down -89% from an all-time high of $168/share. “Valuation: At $9B and 20x revenue with no profits. I have trouble getting my head around it. PayPal trades at 13x, but it’s profitable. Shopify trades at +40x, but it’s got profits AND innovation.”

2. January 17th, 2021: GRIT did a deep dive analysis on Descartes Systems (DSG-US) and told readers that Genevieve owned it (and still does!).

 Stock is up +31% from $74/share to +$101/share (on Oct 16th, 2023). “Look for net income, but if you find ‘free cash flow’ – you’ve hit the jackpot!”

3. July 17th, 2022: GRIT highlighted Berkshire Hathaway (BRK.B) as a position in Genevieve’s portfolio (still is!).

 Stock is up +24% from $278/share to $346/share (Oct 16th, 2023). “Berkshire Hathaway, long and strong, my friends!” 

4. July 29th, 2022: GRIT highlights Visa (V-US) as a position in Genevieve’s portfolio (still is!).

Stock is up +13% from $212/share to $239/share (Oct 16^th 2023). “This is one of my sleep-at-night stocks that I feel comfortable owning in all money cycles. Long & strong Visa.”

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Check out our latest free edition of the GRIT Daily Flagship from Thursday, December 7th. 👇

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