People forget, but when you own shares of stock, you are an owner of the firm. And as such, you’re entitled to a share of the profits. Companies can make this happen in a variety of ways. They can pay a dividend or use those profits to grow the company further. Increasingly, the preferred method for shareholder rewards has been stock buybacks.
With the economy starting to boom in the post-pandemic world, companies have been buying back stock at a record pace once again. The question is, should they?
Buybacks can be wonderful tools for enhancing shareholder value. But they can also be a big misstep and firms often do it at the wrong time. In the end, focusing strictly on buybacks might not be the best strategy for shareholders.
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