3 High Yield Stocks on a Buyback Binge

11/19/2020 5:00 am EST

Focus: STRATEGIES

Tim Plaehn

Lead Income Analyst, The Dividend Hunter

There is frustration among numerous management teams of companies with high-dividend yields that the stock market has not credited for continued dividend payments, asserts dividend expert Tim Plaehn, editor of The Dividend Hunter.

The result has been stock prices that fell and stayed down, resulting in tremendously high yields on the shares. I admire the companies that have protected their investors by not cutting dividends; however, they need to do something to bring share values back up to pre-crash levels.

There is a growing trend of stock buyback authorizations as a supplement to or instead of restoring cut dividends. It will be interesting to see how this strategy works out. Here are three stocks with recent buyback announcements.

Plains All American Pipeline LP (PAA) just announced a $500 million common equity repurchase program.  Half a billion dollars is a meaningful amount for Plains, with a current $4.8 billion market cap.

The company also projects $900 million of free cash flow after distributions for 2021, so they will not go deeper in debt to fund the buyback. PAA shares currently yield over 10%.

Taking a different approach to buybacks, New Residential Investment (NRZ) announced it would buy-in up to $100 million of the company’s outstanding preferred stock shares.

The New Residential Preferred A (NRZ-A) and the New Residential Preferred B (NRZ-B) series both currently yield 8.5% and are trading about 10% below par.

In its 2020 third-quarter earnings report, MPLX LP (MPLX) announced a $1 billion unit repurchase authorization. MPLX has not reduced its common shares dividend throughout the pandemic, and the shares currently yield almost 15%.

Buying in $1 billion worth reduces the dividend payout by $150 million per year. MPLX has a $20 billion market cap.

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