One of the most loved things amongst investors is when a company buys back its own shares. Just like when company directors and executives personally purchase company shares, it is a positive because it shows the company thinks it can grow more, and that the current share price may be in a bargain range.
Share buybacks give a boost to per share earnings and dividends, but it also can indicate the company is generating extra cash well above what it needs for regular operations.
Last week The Australian Financial Review reported financial services company Credit Suisse as saying it sees four companies that may be launching share buybacks in the near future. Investors are attracted to buyback candidates because they follow the momentum the extra attention gives the stocks. Here are those four stocks and what you need to know about them.
1) Telstra Corporation Ltd (ASX: TLS)
A big expansion plan into Asia hasn't hindered the telco giant's ability to generate cash. Also, several asset sell-downs in such businesses as Sensis have built up a war chest for acquisitions. However, some of that could be returned to shareholders as well. Its wonderful 5.4% fully franked dividend yield has been an income cornerstone for many investors. That makes it a confident portfolio pick for me.
2) CSL Limited (ASX: CSL)
Its 1.7% yield may not as big as Telstra's, but the biopharmaceutical company has strong revenue and earnings growth that could power dividends upwards in the near future. With net profit margins regularly over 20% annually, it can generate more than ample cash for further R&D to drive growth. This is another great stock to have in your portfolio and a share buyback would be the icing on the cake.
3) Automotive Holdings Group Limited (ASX: AHE)
This company is the largest automotive retailer and the biggest refrigerated food transport and warehousing service provider on the ASX. It offers a 5.7% fully franked yield. Earnings are forecast by analysts to gain more than an average 10% annually over the next two years. Lower interest rates keep car financing costs low, motivating buyers to purchase cars now. Weaker consumer sentiment may slow sales, but the company also has a separate income stream from its refrigerated food logistics business.
4) Seven West Media Ltd (ASX: SWM)
The company operates such well known media businesses as Seven Television, the Yahoo7 internet platform and The West Australian as well as regional newspapers and radio stations. It is performing better than rival Ten Network Holdings Limited (ASX: TEN), but still contends with pure digital media competition. It does have a huge 6.0% yield. If it can stabilise its media and advertising base, investors may look forward to better earnings forecasts, but of these four I think it is the weakest over the short term.
