How Buybacks Can Support Dividends

As BP announces its $8 billion share buyback, Morningstar's Todd Wenning looks into how repurchasing shares can support a company's dividend

Todd Wenning 22 March, 2013 | 6:01PM
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Some things just don’t work together--oil and water, toothpaste and orange juice, Voldemort and Harry Potter. 

Indeed, many dividend-minded investors will argue that buybacks and dividends are also incompatible, preferring companies to simply return the cash spent on buybacks in the form of cash dividends. 

This group can (justifiably) point to recent examples like Hewlett-Packard (HPQ) and Dell (DELL)--both of which ploughed billions of dollars into buybacks at elevated prices and left long-term investors without much to show for their patience. In hindsight, it’s clear that long-term investors in these companies would have been better served with more dividend cash in their pockets. 

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
BAE Systems PLC560.20 GBX1.08Rating
BP PLC304.65 GBX-0.42Rating
British American Tobacco PLC2,658.00 GBX-0.21Rating
Centrica PLC51.08 GBX0.47Rating
GlaxoSmithKline PLC1,388.20 GBX-0.49Rating
HP Inc27.68 USD-1.28Rating

About Author

Todd Wenning

Todd Wenning  is an equities analyst with Morningstar.

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