The main source of return from stocks coming into mind is dividends. However, dividends being common and iconic, are not the only payout.
Shareholder’s returns can increase when a company buybacks its shares. Buybacks usually lead to a company’s share price growth triggered by increased demand from an issuing company. Thus, a company’s market value rises.
Buybacks can be launched from the bottom when stocks are considered undervalued, and an issuing company tends to increase the price of shares. But buybacks can also be at the high share price levels. Such a buyback is considered a return of money to shareholders, an alternative to dividend payments because a company usually repurchases its shares above the market price level. Anyway, buyback driven by additional demand for a company’s shares creates a favorable economic environment for a company.
The owners unwilling to sell their shares get extra gain from buybacks, too, as the shares they hold rise. Besides, with fewer shares, outstanding EPS (earning per share) is expected to go up, too.
Buyback seems quite an obvious and straightforward approach to receive an increased return on your investment. As a result, tracking financially sound companies that have already referred to buybacks or have intentions may be an effective investment strategy. And ISEC WM jumps at such opportunities.
Risk Warning: The information in this article is presented for general information and shall be treated as a marketing communication only. This analysis is not a recommendation to sell or buy any instrument. Investing in financial instruments involves a high degree of risk and may not be suitable for all investors. Trading in financial instruments can result in both an increase and a decrease in capital. Please refer to our Risk Disclosure available on our web site for further information.