5 Large Caps Benefitting from Buybacks

Management at these companies is doing more than just focusing on revenues and expenses for growth.

| More on:
The Motley Fool

Earnings per share (EPS) is one of the key metrics that investors key on when evaluating a company.  Typically, those companies that are able to demonstrate an ability to consistently grow EPS are the ones that you want to own.

Companies have a lot of levers at their disposal to help them achieve this coveted growth.  For the most part, these levers pertain to increasing revenues and decreasing costs.

There is however another way they can achieve EPS growth that is not directly related to the company’s revenues or expenses.

Share buybacks decrease the denominator in the earnings/share calculation.  If the denominator (shares outstanding) declines at a faster rate than the numerator (earnings), EPS goes up.

Over the past five years, the company’s below have used this “tool” to bolster their respective growth.  The table provides a look at the growth in bottom line net income relative to earnings per share over this period, as well as the percentage decline in shares outstanding for each.

Company Name

Earnings Growth

EPS Growth

Shares Outstanding

Rogers (TSX:RCI.B)




Tim Horton’s (TSX:THI)




Metro Inc. (TSX:MRU)








Shoppers Drug Mart   (TSX:SC)




Source: Capital IQ

What has this meant for shareholders in each of these entities?

We can get a rough idea of the impact that the buybacks have had by taking each company’s current net income and dividing by the shares outstanding from 5 years ago.  We arrive at the Estimated Current EPS in the table below.  This figure can then be multiplied by the current earnings multiple to get a hypothetical value for the shares that can be compared to the current price.  The Difference allows us to get a handle on the “value” management created over the past 5 years through buying back stock.

Company Name

Est. Curr. EPS


Hyp. Price

Curr. Price














Tim Horton’s






CN Rail












Source:  Capital IQ

It’s important to emphasize these are just estimates as each company’s current earnings multiple is partially a result of the share buyback activity that has taken place in the past.

Foolish Takeaway

Buying back stock is just one of the shareholder friendly moves a management team can make to help juice shareholder returns.  The other biggie is when management pays out excess capital in cold hard cash through a regular dividend.

If you’re partial to dividends, we’ve created a special FREE report that highlights 13 companies that you need to click here to find out about.  “13 High Yielding Stocks to Buy Today” will have you rolling in dividend cheques before you know it.  You’re one click away from dividend nirvana!

Follow us on Twitter and Facebook for the latest in Foolish investing.

Fool contributor Iain Butler does not own any of the companies mentioned in this report at this time.  David Gardner owns shares of CN Rail. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

More on Investing


CNR Stock: Should You Buy Today?

Canadian National Railway has been hit in recent quarters, as economic growth has slowed, with CNR stock declining 10% in…

Read more »

Family relationship with bond and care
Dividend Stocks

TFSA Investors: 3 Cheap Canadian Stocks for Retirees

These three Canadian stocks are super cheap for retirees looking for a great buy that will last the test of…

Read more »

calculate and analyze stock
Dividend Stocks

CPP Disability Benefits: Here’s How Much You Could Get

Not everybody can get CPP disability benefits. If you want some passive income, consider investing in Royal Bank of Canada…

Read more »

growing plant shoots on stacked coins
Dividend Stocks

Boosting Your Monthly Income: TSX Stocks That Deliver

Dividend investing can boost regular or active incomes, especially select TSX stocks that pay monthly dividends.

Read more »

consider the options
Tech Stocks

Better Buy (2024 Edition): Shopify or Nvidia Stock?

Shopify (TSX:SHOP) isn't the only red-hot tech stock in town that could add to recent gains.

Read more »

Bad apple with good apples

5 Stocks You Can Confidently Invest $500 in Right Now

These stocks could significantly grow your investment over the next decade.

Read more »

Illustration of bull and bear
Tech Stocks

A Bull Market Is Coming: 3 Growth Stocks That Could Thrive

Given their high growth prospects and cheaper valuation, these three growth stocks would be an excellent buy as the market…

Read more »

Golden crown on a red velvet background
Energy Stocks

Enbridge Stock: This Dividend Aristocrat Could Gain in 2024

Enbridge (TSX:ENB) stock is looking like a great buy as management expects it to grow in 2024.

Read more »