What are we looking for?
Global stocks with the most reliable track records for both dividend increases and share buybacks.
Making a habit of it
A lot of market strategists have been urging companies to spend some of their ample cash on dividend increases and share buybacks. While maybe not the most creative or exciting way to put your war chest into action, both have a habit of boosting the share price – and, thus, are popular fallbacks when you have investors agitating for you to do something about their returns and your stock price.
While it's hard to argue with the value to any stock of a dividend increase – you're putting more money directly in the hands of shareholders, increasing their total returns – the question of buybacks is a more complicated one, said Brockhouse Cooper strategist Pierre Lapointe and financial economist Alex Bellefleur. In a recent report, they argued that one-time share buybacks too often take place when stocks are at expensive highs, or when earnings-growth prospects are fading and management is desperately trying to keep the party going in the stock. Stocks doing one-off buyback programs don't perform much differently than the rest of the market, they concluded.
However, they argued, a consistent policy of buying back shares every year is associated with superior stock performance, as it reflects a regular stream of high cash flows and provides a consistent boost to earnings per share.
With this in mind, Mr. Lapointe and Mr. Bellefleur ran a screen of large-capitalization global stocks to identify which ones most consistently buy back their shares and increase dividends.
What did we find?
The screen looked at companies worldwide with a market capitalization of more than $1-billion (U.S.) that have dividend yields greater than 2.5 per cent; have increased their dividend per share by at least 10 per cent over the past five years; and have reduced their number of shares outstanding in each of the past five years.
The screen produced a list of 14 stocks – 11 in the U.S. market and three in Japan.
Tellingly, the list is dominated by traditionally defensive sectors. Most of the names on the list are from the consumer-discretionary, utilities and health care segments of the market, as well as the military-defence sector. It would seem businesses with reliable cash flows – even in slower economic times and down markets – are also the ones who most reliably use their cash to reward shareholders.
David Parkinson