Companies can allocate their funds in different ways to create shareholder value. But in the eyes of legendary investor Warren Buffett, one method stands out above all others.
“If you’re doing it at the right price, there’s nothing better than buying into your own business,” the Berkshire Hathaway CEO said at his company’s 2022 annual meeting of shareholders.
Buffett was referring to stock buybacks. Basically, a company can buy back its own shares on the open market, reducing the number of shares outstanding. Therefore, the remaining shareholders own more of the company as their relative stake increases.
He used American Express as an example to illustrate the power of buyouts.
Buffett mentioned that Berkshire bought its last share of American Express around 1998, owning 11.2% of the payments company at the time.
“And now we own 20% of American Express. This happened because they bought back shares,” he explained.
“It’s a wonderful thing if you have an asset that you like and they take your stake.”
These days, cash-strapped companies spend billions of dollars on takeovers. Here are three particularly generous ones.
Apple Inc. (NASDAQ:AAPL)
According to S&P Global, Apple spent $94.1 billion on buybacks in 2022, compared to $88.3 billion in 2021.
But that shouldn’t be a surprise. With a market capitalization of $2.75 trillion, Apple reigns as the largest company in the United States
He is known to have a huge stack of cash. According to the latest earnings report, Apple’s cash, cash equivalents and marketable securities totaled $166.3 billion as of April 1.
Apple also happens to be a Buffett favorite – it’s the largest publicly traded stake in Berkshire’s portfolio.
“We knew we would have an even bigger interest if they continued to buy their shares, which – we had no insider information or anything – but certainly that would seem to be the way to bet,” Buffett said of Apple at Berkshire. general meeting last year.
Alphabet Inc. (NASDAQ:GOOGL)
As Google’s parent company, Alphabet was founded in 2015 to give Google’s crazy ideas some leeway. The company offers a wide range of ventures, from dominating the search engine market to exploring self-driving cars and life sciences.
S&P Global reports that Alphabet buybacks totaled $59.3 billion in 2022, up from the 2021 figure of $50.3 billion.
Despite being a tech giant, Alphabet stock has been volatile: Shares soared 20% in 2023, but are still down around 4% from a year ago. year.
Some see the growing popularity of OpenAI’s ChatGPT chatbot as a threat to Alphabet’s business. But Alphabet isn’t standing still, as the company is also advancing its own artificial intelligence (AI) products.
“In March, we launched our experimental conversational AI service called Bard,” Alphabet CEO Sundar Pichai said on the latest earnings conference call. “We’ve since added our PaLM model to make it even more powerful, and Bard can now help people with programming and software development tasks, including code generation.”
Meta Platforms Inc. (NASDAQ: META)
Shares of Facebook parent company Meta Platforms have had a tough run in 2022, and the company has benefited from lower prices through buybacks. According to S&P Global, Meta repurchased $31.6 billion of its stock last year.
And now the stock is making a comeback. Since the start of the year, Meta shares have jumped more than 80%.
A strong first quarter report helped boost the stock’s appeal. For the quarter, the company earned $2.20 per share on $28.65 billion in revenue. Both figures exceeded Wall Street expectations.
Meta also continued to expand its user base. In the first quarter, Facebook’s monthly active users grew 2% year-over-year to 2.99 billion. Across its app family, Meta Family monthly actives grew 5% year-over-year to 3.81 billion.
The bottom line
Remember, Buffett mentioned that redemptions should be made “at the right price.” So just because a company is spending a lot of money on buyouts doesn’t automatically make it a good investment.
Additionally, there are other ways for companies to return cash to investors, such as paying a regular dividend. If your goal is to earn a steady stream of passive income, you might want to look into reliable dividend plays, both inside and outside of the stock market.
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This article, says Warren Buffett, “There is nothing better” than this strategy if you “do it at the right price”. Here are 3 leading companies in this field that originally appeared on Benzinga.com
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