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Published: October 1, 2009
If anyone ever tells you that you must choose between
dividends and capital gains, it's now safe to laugh.
A full 135 companies have increased their dividends AND
decreased their shares outstanding through buybacks in each of
the past five years.
Stock buybacks and dividends are the two major ways companies
return wealth to shareholders. It's easy to see how dividends
work; the company makes money and passes some of it off to
shareholders.
Stock buybacks are a little trickier.
By buying its own shares, a company reduces the number of
shares outstanding, which increases the value of individual
shares. The result is that each shareholder's stake in the
company grows.
If you owned 1,000 shares of a company with 100,000 shares
outstanding, for example, you'd have a 1% stake in the company.
If that company bought back 10,000 shares, you'd now own about
1.1% of the company. Theoretically, the value of your shares
would increase by a similar percentage.
I screened for companies that
have decreased their total shares
outstanding every year during the
past five years. Then I added the
requirement that these companies
must have also increased their total
annual dividends each year during
the past five years. The result was
135 companies.
To refine our selection universe further, I looked for
companies with positive free cash flow during the past three
years. "Free cash flow" is operating cash flow less what the
company allocates to capital expenditures. A positive number
here is a good sign because it shows the company can generate
cash -- which is what dividends are paid with.
I also removed companies that had a market capitalization of
less than a billion dollars.
The final criterion was a yield above 6%.
Here are the two winners:
|
Company
(Ticker) |
Yield |
5-Year Dividend
Growth |
5-Year Total Return |
10-Year Total
Return |
|
BP PLC (NYSE: BP) |
6.3% |
+15.6% |
+19.4% |
+34.6% |
|
Portugal Telecom
(NYSE: PT) |
7.1% |
+20.7% |
+64.5% |
+122.9% |
-- Anthony Haddad
Staff Writer
StreetAuthority.com |