Share repurchase authorizations are useful indicators to always keep in mind. Share buybacks are often viewed as an indirect return of capital to shareholders. When a company buys back its shares, it reduces the number of shares outstanding. All other things being equal, this increases earnings per share (EPS), which often leads to higher share prices. They can also indicate that management is confident in the company’s health. The company must buy shares on the market. They likely wouldn’t do this if they thought their stock was overvalued.
However, excessive buyback activity can be a bad thing. This may indicate that the company lacks investment opportunities to grow the business and views buybacks as a better use of capital. Larger buyback programs make more sense in mature companies that ultimately seek to reward shareholders. It is important to note that authorizing a share buyback does not guarantee that the company will proceed with it. Below, I detail four firms that have recently announced significant buyback approvals. All market capitalization figures are as of the closing date of shares on December 9.
Qualcomm: Chip Giant allows buyback of Giant
QUALCOMM today
(As of 12/11/2024 ET)
- 52 week range
- US$134.94
▼
$230.63
- Dividend yield
- 2.13%
- P/E ratio
- 17.78
- Target price
- $208.00
Qualcomm NASDAQ:QCOMa major player in the semiconductor market, announced a $15 billion share buyback program on November 6. Considering the company’s market capitalization of $179 billion, this represents more than 8% of the company’s value. The company primarily develops chips for mobile phones, automobiles and Internet of Things (IoT) devices. Snapdragon chips are among the most advanced semiconductors in Android phones and Windows laptops.
It is interesting to note how Qualcomm is promoting artificial intelligence. They want to embed chips into devices to run workloads internally. This is different from the data center model, where devices are connected to the cloud. Advanced chips in the data center then do the computing work and send the information back to the end device. Qualcomm also has a large patent business. Patent offices have granted Qualcomm the fourth most patents in the world in 2023.
AT&T hopes to return $40 billion to shareholders
AT&T today
AT&T
(As of 12/11/2024 ET)
- 52 week range
- US$15.94
▼
$24.03
- Dividend yield
- 4.73%
- P/E ratio
- 19.09
- Target price
- US$25.00
Telecommunications giant AT&T New York Stock Exchange: T just confirmed plans for significant share buybacks and dividend payments. Over the next three years, the company plans to invest $20 billion in each of them. The company has currently authorized $10 billion in share buybacks, representing 6% of its market capitalization. At a recent Investor Day, the company touted its progress in strengthening its balance sheet and reducing debt.
The company hopes to continue the success of its fiber-optic strategy to connect homes and businesses to the Internet. The company’s key strength is improving its ability to cross-sell fiber and cellular Internet services. The company wants to continue to expand its fiber network and increase the number of fiber customers who bundle their cellular plans. Consolidation reduces the likelihood that users will switch carriers, creating lasting customer relationships.
CME Group: Billions in Buybacks and Variable Dividends
CME Group today
(As of 12/11/2024 ET)
- 52 week range
- US$190.70
▼
$249.02
- Dividend yield
- 1.96%
- P/E ratio
- 24.64
- Target price
- $226.20
CME Group NASDAQ: CME On December 5, he approved a $3 billion buyback program. That represents more than 3% of the company’s $85 billion market capitalization. In addition, the company declared an annual variable dividend of $5.80 per share to shareholders as of December 27, 2024. The total value of these dividends is US$2.1 billion.
The company has made it a habit to pay large annual dividends in addition to quarterly payments. Based on the December 9 closing share price, the additional payment would give the company a dividend yield of 4.4%. CME Group maintains its position as the largest derivatives exchange in the United States as of 2023. It is also considered the third largest in the world.
Wingstop: a clever method of repurchasing shares
Stop today
(As of 12/11/2024 ET)
- 52 week range
- $240.60
▼
$433.86
- Dividend yield
- 0.33%
- P/E ratio
- 96.26
- Target price
- $368.74
The last one is by far the smallest of these firms, Wingstop. NASDAQ: WING. On December 5, the company approved a $500 million share repurchase program, representing 5.2% of the company’s market capitalization. This happens after nearing completion of the $250 million share repurchase program it began in 2023. The company is dedicating $250 million of this program to its accelerated share repurchase (ASR) program, which will begin in the fourth quarter.
According to ASR, the company hands over the money to an investment bank that will buy the shares on its behalf. The bank borrows shares from the market and immediately delivers them to the company, affecting earnings per share. The investment bank then actually buys back the shares from the market over time and returns them to those who lent the shares. This allows the company’s share repurchase plan to be completed very quickly.
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