When it comes to stock buybacks, announcements of new repurchase programs are important to stay aware of. However, announcing a share repurchase program is very different from actually buying back shares. Unlike dividends, when a company announces a share repurchase program, it is not obligated to actually execute it. This is one reason many companies prefer to return capital to shareholders using buybacks rather than dividends. It gives them added flexibility in how they can use the cash on their balance sheets.
Noticing if companies use their buyback capacity is as important as noticing their buyback announcements. One simple and easy metric that measures to what extent a company is buying back shares is the buyback yield. It measures the total value of shares repurchased over a period in relation to a company’s current market capitalization. Below, I’ll look at three stocks that have a strong buyback yield of 10% or more over the past 12 months. This indicates that they have bought back a large amount of shares, providing a significant tailwind to their earnings per share (EPS).
