Publicly traded corporations return money to their shareholders in two main ways: regular dividends and stock buybacks. It is clear why investors love dividends, because they get cash sent to them or, if the company has a dividend reinvestment plan, they can buy more shares of the stock, sometimes at a discount.
When corporations buy back their own stock, that serves investors as it puts a bid under the shares, as buybacks usually are large and take days, weeks or months to complete. In some cases, corporations park the shares for bonus time and other uses, effectively taking them out of the float.
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Goldman Sachs analysts track corporate buybacks, and in a new research report they revealed the stocks in the firm’s “buyback baskets,” which are constructed by sector. We were intrigued by the five companies in the information technology (IT) basket that bought back the highest percentage of their own shares over the past 12 months. The analysts noted this when discussing these buybacks:
Second quarter earnings season reaffirmed our view that corporations are a key source of demand for US equities. Repurchases totaled more than $200 billion in the second quarter and buyback announcements through July equaled $683 billion. Previously-announced deals should drive nearly $250 billion of cash mergers and acquisitions spending in the second half of 2021, joining a potential $460 billion of buybacks if the recent pace continues. This demand should easily outweigh equity supply from IPOs, follow ons, SPACs, and convertibles as well as potential selling from upcoming IPO lock-up expiries.
We screened the five IT stocks buying back among the most stock to see which Wall Street firms had Buy-equivalent ratings, and they are listed in order of the biggest buyback percentage. It is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
HP
This legacy Silicon Valley pioneer has purchased 24% of its own stock over the past 12 months. HP Inc. (NYSE: HPQ) provides personal computing and other access devices, imaging and printing products and related technologies, solutions and services in the United States and internationally.
HP serves individual consumers, small and medium-sized businesses and large enterprises, including customers in the government, health and education sectors. The company operates through three segments.
The Personal Systems segment offers commercial and consumer desktop and notebook personal computers, workstations, thin clients, commercial mobility devices, retail point-of-sale systems, displays and other related accessories, software, support and services. The Printing segment provides consumer and commercial printer hardware, supplies, solutions and services, as well as scanning devices. And the Corporate Investments segment includes HP Labs and business incubation projects.
Shareholders receive a 2.63% dividend. Morgan Stanley has a $40 price target on HP stock. The consensus target of $33.04 is much closer to Monday’s close at $29.44 per share.
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