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

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
Rating
BAE Systems PLC657.60 GBX-1.70
BP PLC439.05 GBX-3.20
British American Tobacco PLC3,255.50 GBX-2.89
Centrica PLC76.62 GBX-3.48
GlaxoSmithKline PLC1,631.60 GBX-1.60
HP Inc22.70 USD0.27

About Author

Todd Wenning

Todd Wenning  is an equities analyst with Morningstar.

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