Stock buybacks are being fueled by cash-heavy balance sheets as well as companies being aggressive in returning capital to shareholders, observes Chuck Carlson, dividend reinvestment expert and editor of DRIP Investor.
To be sure, buybacks are somewhat controversial with investors. I get the feeling most retail investors would prefer companies return capital via cash dividends rather than stock buybacks. Even so, stock buybacks do provide a source of buying power in the market, which can be supportive during market declines.
One Editor’s Portfolio stock, Regions Financial (RF), just announced it plans to buy back up to $2.5 billion worth of stock through 2024. The buyback equates to repurchasing roughly 12% of the company’s outstanding shares at current prices — a hefty buyback.
It’s worth mentioning that Regions Financial is not using all its spare cash for buybacks. Indeed, the firm pays a quarterly dividend of $0.17 per share, which equates to a 3.2% dividend yield.
The company’s meaningful buyback and cash dividend programs reflect a confidence in the firm’s future. Earnings estimates for 2022 and 2023 have risen over the last 60 days. And the increase in interest rates should help the company’s net interest margins.
Regions stock is trading at an 18% discount to its 52-week high of more than $25 per share. Banking stocks have been roughed up due to concerns of an economic recession. However, Regions’ buyback and dividend yield should provide some downside support, and I think these shares have a good chance of returning to the mid-$20s this year.
Please note Regions offers a direct-purchase plan whereby any investor may buy the first share and every share directly from the company. Minimum initial investment is $1,000. Subsequent investments are a minimum $100.
