Share buybacks initiated by companies are usually a sign of good times. By snapping up a portion of its own stock off the market, a company can increase the value of individual shares. If good financial performance continues, shareholders reap huge benefits as the company’s stock price increases.
One thing to note is that buybacks are certainly more common when the economy is in good shape, as companies like to put their cash flow toward capital expenditures in down times. When the stock market is not performing well, it’s harder for buybacks to help stock prices as the market is heading downward. The following buybacks initiated by these three technology companies are a sign of the times: repurchase shares while the market is going up overall.
Sustainable payout?
Chip-maker Texas Instruments Incorporated (NASDAQ:TXN) announced in February that the company would buy $5 billion worth of its stock. At the same time, the company also announced it would increase its quarterly dividend by 33%. In Texas Instruments’ most recent quarter, it exceeded analysts estimates with a 37% increase in revenue from the previous year.
Although the company is not performing well in the consumer-device market, it is gaining revenue with large component orders from the industrial and automotive sectors. Manufacturing facilities and cars alike are becoming more digital, making them more efficient. Texas Instruments Incorporated (NASDAQ:TXN) is well positioned for this evolution to continue.
When you look at the number of cars and other machines that are becoming Internet aware, now is a good time to invest in Texas Instruments’ future. But you have to worry about the sustainability of the current dividend payout. The company’s payout ratio went up to 91% in Q4 2012, way higher than Q3’s 3.1%.
In fact, Q4’s ratio was higher than the previous three quarters combined. Rewarding investors is important, but some of that cash might be needed for other expenditures in the future. I’d hold off on buying, but keep a watchful eye.
Rising dividend
The company’s Snapdragon microprocessor is popular in cutting-edge phones like the new Samsung Galaxy S4. Its chips are also designed to help power the newest long-term evolution (LTE) ultra-fast standard for wireless networks. Existing 3G networks will someday be obsolete, so this is a very smart bet.
Although QUALCOMM, Inc. (NASDAQ:QCOM)’s year-over-year EPS have decreased, the company has upped its dividend. But keep in mind the buyback. The less shares outstanding, the less the company needs to pay out in total dividends. This is creating shareholder value. When you consider that Qualcomm is prepared for the future of wireless networks and the company’s finances, which are extremely cash-positive, this stock looks like a winner right now.
Largest buyback
The largest buyback plan of these three, Apple Inc. (NASDAQ:AAPL) plans on purchasing $50 billion of its own stock. In fact, this is being pegged as the largest share-repurchasing program in history. This strategy will help to increase the company’s earnings per share over time since the number of outstanding shares will eventually decrease by more than 100 million.
The exact number of shares bought will depend on the stock price. There is some uncertainty with this news in regards to when or even if Apple Inc. (NASDAQ:AAPL) plans to launch another blockbuster product like the iPhone. But this buyback is making many shareholders very happy for the time being.
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