Do buybacks enhance shareholder value?
Share repurchases have been increasingly popular in recent years. Recently, Barron’s mentioned that average annual dividend payments at companies have doubled to just over $500 million since 2002, while share repurchases over the same time frame have tripled to just over $600 million. Many times, these plans can work out very well for investors. By buying back its common stock, a company increases its earnings per share as well as other important metrics, such as return on equity (ROE) and return on invested capital (ROIC). But does this really make a company more valuable? No, not really. Do buybacks mean a stock is cheap? But there’s a line of thinking in the investment world that any time a company announces a share repurchase plan it believes its shares are undervalued. Back in 2000, for example, Warren Buffett famously announced that he would repurchase Berkshire Hathaway (NYSE: BRKb ) stock, the first and only time he has made such a statement. Investors took this to mean that Bu