Their total yields are high, helping their shares as they are falling
Now that stocks have been falling for a while, I suspect that share buyback stocks are likely taking advantage of this. Those stocks that both pay a dividend and have buybacks, especially when they are dropping, tend to do well over time.
This is because buyback stocks steadily reduce the supply of shares outstanding. The buyback program allows the dividend per share to rise over time. That is, it allows higher dividends per share without a commensurately higher dividend cost.
Therefore, this benefits both the company, with lower dividend costs, and shareholders, with higher dividends.
This article will discuss 7 buyback stocks that also pay dividends. I decided to focus on the largest stocks possible that have both dividend and buyback programs. These stocks are:
- Apple (AAPL)
- Microsoft (MSFT)
- Nvidia (NVDA)
- Visa (V)
- Procter & Gamble (PG)
- UnitedHealth (UNH)
- Oracle (ORCL)
Let’s dive in and look and look at these stocks.
Market Capitalization: $2.65 trillion
Apple has the largest buyback program in the world. As of the end of its fiscal year in Sept. 2021, it had bought back $254.1 billion of its total $315 billion buyback program. This can be seen on page 18 of its 2021 10-K annual report filing with the Securities and Exchange Commission (SEC).
This means that based on its market cap today, Apple’s buyback program represents about 9.58% of its shares. Since it took about two years for these buybacks, that means it buys back roughly 4.25% of its shares annually.
In Nov. 2021 Barron’s magazine referenced a research note written by Bernstein analyst Toni Sacconaghi on AAPL share repurchases. He wrote that Apple has returned 100% of the company’s free cash flow (FCF) in the past four years. this is along with its regular dividend payments.
Here is his amazing conclusion, according to Barron’s:
Apple could continue buying back between 3% and 4% of its shares each year through 2026 — while growing its dividend 10% a year — without taking on any net debt on its balance sheet.
As a result, its total share count can be forecast as falling by 15% over the next five years, according to the analyst. So, between the higher dividends and lower share count, AAPL stock has a good chance of moving at least 13% to 15% higher each year, as a minimum, before any multiple expansion.
Another reason for this is that the share count will increase the earnings per share (EPS). This assumes its “hardware revenues do not decline and its service segment grows at historical mid-teens,” according to Sacconaghi. So look for good things to happen with Apple stock over the next five years with its dividend and stock buyback programs.
Market Cap: $2.22 trillion
Microsoft also has a large share repurchase program as well that represents a significant part of its market capitalization. Its third-quarter 2021 quarterly 10-Q filing, on page 24, said that on Sept. 14, 2021, Microsoft approved a new share repurchase program for $60 billion.
This implies that the $60 program will be about 2.7% of its total market cap (i.e., $60b/$2,222 b market cap).
The new $60 billion buyback program was to start as soon as its prior $40 billion program closes. That program was authorized about two years ago on Sept. 18, 2019, when Microsoft started a $40 billion share program. Estimates are that this program finished during the fourth quarter and now Microsoft is on the new program.
Moreover, the large software company looks set to buy back about 1.35% of its market annually (i.e., 2.7% of market cap/2 years). In addition, its dividend yield, based on its $2.48 dividend per share (DPS) is 0.838% (i.e., $2.48/$296.03 price). This gives MSFT stock a total yield of about 2.2% (i.e., 1.35% dividend yield + 0.838% buyback yield) annually.
Despite Microsoft’s recent $69 billion cash acquisition of Activision Blizzard (ATVI), Microsoft will have plenty of cash and FCF to afford the buybacks.
For example, my recent article on Microsoft shows that its annual FCF is about $60.4 billion. The dividend will cost about In addition, Microsoft has $131.6 billion in cash and short-term investments on its balance sheet. The dividend payments cost about $18.6 billion annually (i.e., $2.48 DPS x 7.508b shares outstanding).
Therefore, its cash outlays are about $49 billion for dividends and buybacks, but its cash inflow from FCF is $60 billion. That leaves at least $11 billion annually it can use for acquisitions like Activision Blizzard. This will turn into a virtuous circle as the periodic acquisitions increase its earnings and FCF.
Market Cap: $584 billion
In the last 12 months ending Sept. 30, Nvidia, the fast-growing chip company, spent $1.5 billion in share repurchases. This is according to Seeking Alpha, which shows the last 12 months (LTM) history of any company’s cash flow uses.
That works out to about 27 basis points (i.e., $1.5b/584b = 0.27%). (Note: there are 100 basis points in 1.00%). On top of this, the company pays an annual 0.068% (i.e., 6.8 basis points). That gives it a total yield of 0.338% (33.8 basis points).
The dividend yield and buyback yield is not great (i.e., combined they are less than 1%). But they still signify the company’s commitment to return value to shareholders. Over time, as the company’s FCF continues to grow, one can expect the total yield to rise as its dividend and buybacks rise.
But no one is really going to buy NVDA stock, based mainly on its dividend and buyback program. This is a growth company: EPS this year are forecast to rise 20% and sales are forecast to grow 18.2%. This is according to Seeking Alpha’s survey of 39 analysts.
Market Cap: $447 billion
Visa produces a great deal of FCF that it uses to both pay a nice dividend and also buy back shares. For example, according to Seeking Alpha, its LTM FCF was over $14.5 billion ($14.522b).
This allowed it to pay $2.8 billion in LTM dividends and $8.82 billion in share repurchases. This brings its total capital returns to $11.62 billion, well below its $14.5 billion in FCF.
Visa’s dividend yield is 0.73% and its buyback yield is 1.97%. The buyback yield is based on LTM $8.82 billion in buybacks divided by its $447 billion market cap.
As a result, the total yield to shareholders is 2.7% (i.e., 0.73% dividend yield + 1.97% buyback yield).
On Dec. 13, 2021, Visa’s board approved a new share buyback program. It now will be able to repurchase up to $12 billion in common stock shares. That is 2.7% of its market cap and 36% more than the $8.82 billion buybacks as of Sept. 30.
Therefore, investors should expect good things to occur with V stock over the next year.
Procter and Gamble (PG)
Market Cap: $389.9 billion
Procter and Gamble made almost $15 billion (14.885b) in LTM FCF, based on Seeking Alpha’s data. This is based on $17.972 billion in cash flow from operations (CFFO) as of Sept. 30, minus $3.087 billion in capital expenditures). The FCF is “free” to be spent on dividends, buybacks, debt repayments, and acquisitions.
As a result, PG spent $13.5 billion in share buybacks and $8.56 billion in dividends. This brings its total capital returns to $24.1 billion. This is $6.1 billion greater than the $18 billion in FCF that funds these activities. As a result, P&G increased its borrowing by over $5 billion to make up most of the $6 billion difference.
Moreover, Procter and Gamble’s dividend yield is now 2.14%, based on its $3.48 DPS and the stock price of $162.62. In addition, its buyback yield is 2.19%. This is seen by dividing its $8.56 billion in buybacks divided by its $390 billion market cap.
In addition, on Jan. 19, 2022, Proctor and Gamble provided guidance for its upcoming year. Its slide deck shows that the company intends to increase its share repurchases to $10 billion over the coming year, up from $9 billion in 2021.
Accordingly, its buyback yield has risen to 2.56% (i.e., $10b/$390b), up from 2.19%. This increases its total yield to 4.75% (i.e., 2.14% dividend yield + 2.56% buyback yield).
UnitedHealth Group (UNH)
Market Cap: $434 billion
UnitedHealth Group has a respectable total yield. My estimate is that its total yield (dividend yield plus buyback yield) is over 2.41%.
Here is how that works out. Right now UNH pays a $5.8 dividend per share. So based on its stock price of $461.17, the dividend yield for UNH stock is 1.26%.
Moreover, in the last 12 months, UnitedHealth bought back $5 billion of its shares, based on its cash flow statement. That works out to a 1.15% buyback yield (i.e., $5b/$434b market cap).
Therefore, UNH’s total yield is 2.41% (i.e., 1.26% dividend yield, plus 1.15% buyback yield). In total it has returned over $10.28 billion in buybacks and dividend payments for shareholders.
And UNH still has plans to continue its share buybacks. According to its latest 10-Q filing, it had the authorization to purchase up to 48 million shares of its common stock. That represents about 5% of its remaining shares outstanding.
This means that good things should occur over the year for UNH stock.
Oracle Corp (ORCL)
Market Cap: $219.56 billion
Oracle is one of the highest buyback stocks and total yields in this whole group. Its total yield works out to 4.81%. That is a very powerful force that can help push ORCL stock higher over the next year.
For example, based on its $1.28 annual dividend per share ORCL stock has a 1.56% dividend yield on its $82.22 stock price on Jan. 21.
Moreover, Oracle has bought back $28 billion of its shares in the last year. That works out to 12.7% of its stock price. This is based on Seeking Alpha’s LTM repurchase calculations.
However, recently on Dec. 9, Oracle told shareholders that its board had authorized a repurchase of $10 billion of shares in future quarters.
Even if it does that amount over the next four quarters, that works out to 4.55% of its market cap (i.e., $10b/$220b). This gives it a potential 4.55% buyback yield, assuming the $10 billion in share repurchases are done over the next four quarters.
So, if we add the 1.56% dividend yield to the 4.55% buyback yield, the total yield to shareholders will be 7.11%. That is a very powerful return that should help ORCL stock do quite well over the next 12 months.
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