Monday, June 8, 2009

Dividends and Stock Buybacks in the news

Companies have several means through which they share their prosperity with shareholders. Dividends are the portion of corporate profits paid out to stockholders in the form of cash. Share buybacks on the other hand distributes cash to existing shareholders in exchange for a fraction of the company’s outstanding equity. While both methods have their pros and cons, when used carefully, they could strongly add to the total returns of long-term shareholders.

Several companies announced plans to return billions of dollars to shareholders either through stock buybacks or dividend increases;

Wal-Mart Stores, Inc. (WMT), which operates retails store in various formats worldwide, approved a new share repurchase program that gives the company authorization to repurchase $15 billion of its shares. That’s after having repurchased $11.5 billion in stock over the past two years. If all the stock were bought at the current prices, the company would be able to retire about 7.5% of its outstanding common stock.
Wal-Mart Stores, Inc. is a dividend aristocrat, which has increased its quarterly dividend in each of the past thirty-five years. The company raised its quarterly dividend by 15% in early march to 0.273/share. The stock currently yields 2.10%.
Despite the fact that I am bullish on the stock, I would still need an initial yield of 3% before I could add to my position there. Wal-Mart has been flat for over a decade now, where any returns were achieved exclusively through dividend reinvestment. If the stock price remained where it’s at for another decade, I would like to at least get some decent return in the form of at least a somewhat decent dividend yield. Currently there are many other dividend growth stocks that yield more than 3%, which still have the same growth characteristics as the Bentonville, AR based retailer.

Cardinal Health (CAH), which provides products and services to the healthcare sector in the United States, announced a 25% increase in its quarterly dividend to $0.175/share. Cardinal Health is a dividend achiever, which has increased its quarterly dividend for twenty consecutive years. The dividend has increased over 11 times over the past decade. The company's focus on dividend expansion creates a predictable and disciplined use of cash to drive shareholder returns and signals confidence and strength in the cash generated by its businesses. The stock currently yields 2.30%. I would be interested in acquiring shares in this global healthcare provider on dips below $24.

Universal Health Realty Income Trust (UHT), which invests in health care and human service related facilities,, increased its quarterly dividend to 59.50 cents per share. Universal Health Realty Income Trust is a dividend achiever, which has increased its quarterly dividend in each of the past twenty-one years. The stock currently yields 7.00%.

As usual, scanning the wires for dividend increases or any dividend news whatsoever is only the beginning in the process of sifting through many stocks, before identifying the best dividend stocks to own for the long run.

Full Disclosure: Long WMT

Relevant Articles:

- Why do I like Dividend Aristocrats?
- Wal-Mart Dividend Analysis
- Replacing dividend stocks sold
- Dividend Investors Running With the bulls

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