These Companies Aren’t as Shareholder Friendly as They May Appear

Another case of the numbers not always being as they seem.

| More on:
The Motley Fool

In the spirit of today’s announcement that Wal-Mart plans to purchase $15 billion worth of its own stock, let’s kick the subject of share buybacks around a little more here.

The natural reaction to hearing this kind of announcement is “great, my company is going to take its shares outstanding from 100 to 90 and my ownership stake is going up”.  Or something like that.

Not only can share buybacks shrink the ownership pool, they can also provide a lift to earnings per share by reducing the denominator in the equation.  This can give a boost to a company’s stock price.  In a previous post, we highlighted 5 Canadian companies that were using this bit of financial engineering to great effect.

As with today’s Wal-Mart announcement, buybacks are generally greeted with a friendly headline and typically exude a feel-good aura.

However, these friendly headlines and initial sense that one’s ownership stake is going to increase can sometimes be misleading.

You see, another reason that companies buy back their own stock is to offset the dilution that occurs when shares are issued as employee compensation.  This is a bit of an in-one-door-and-out-the-other type scenario.

Rather than increasing one’s ownership stake, this practice merely prevents it from decreasing.  Still better than the alternative, but not the feel-good result that is supposed to occur.

So which Canadian companies appear guilty of carrying out this practice?  5 culprits are tabled below.

Company Name

LTM Buyback

LTM Issuance


TD Bank (TSX:TD)




Royal Bank (TSX:RY)




Talisman Energy (TSX:TLM)




Open Text (TSX:OTC)




Brookfield Asset Management (TSX:BAM.A)




Source:  Capital IQ

The banks have a bit of a reputation as being significant buyers of their own stock.  The Toronto Star reported after TD’s recent 2nd quarter earnings that “the bank plans to buy back up to 12 million of its common shares over the coming year, or about 1.3% of the total”.  Well guess what.  Based on their history, they’re also going to issue 12 million shares in the form of employee compensation.

When we extend our time line to include the past 5 years for both TD and Royal, each bought back $11 billion and $20 billion worth of stock respectively.  However, over this same period, they’ve issued $15 billion and $23 billion of stock to more than offset the impact that their significant buybacks have had.

The Foolish Bottom Line

This is just another example of why you should never take a headline, or a metric as it’s reported.  The financial industry is filled with half-truths and spin and a skeptical eye can go a long ways to uncovering the real truth.  This is also an example of why dividends are this Fool’s preferred way for a company to give back to its shareholders.  Cash in one’s investment account after all is one number that doesn’t have a dual meaning.

If you too are a believer in dividends, you need to download the Motley Fool’s report “13 High-Yielding Stocks to Buy Today”.  This report will have you rolling in dividend cheques in no time!  To download this report at no charge, simply click here now.

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.

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

Fool contributor Iain Butler does not own any of the stocks mentioned above.  The Motley Fool doesn’t own shares in any of the companies mentioned.   

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

funds, money, nest egg

Retirees: 3 Canadian Stocks You Can Confidently Own for the Next 20 Years

Here's why retirees need to plan beyond 20 years in retirement. Fortis Inc. (TSX:FTS), Royal Bank of Canada (TSX:RY) stock…

Read more »

Question marks in a pile
Tech Stocks

Should You Invest in Absolute Software Stock Right Now?

Absolute Software (TSX:ABST) is a tech stock that is worth your attention, as it offers exposure to exciting security markets.

Read more »

Dividend Stocks

1 Oversold Dividend Stock I’d Buy in December 2022

Here’s one of the best Canadian dividend stocks to buy in December that I find undervalued.

Read more »


FOR TUESDAY – 3 TSX Stocks to Buy Today and Hold for the Next 3 Years

Given their growth prospects, these three TSX stocks could outperform over the next three years.

Read more »

Supermarket aisle with empty green shopping cart
Stocks for Beginners

Is Dollarama Stock a Buy at All-Time Highs?

Dollarama stock (TSX:DOL) remains at all-time highs while the rest of the market drops. Does this mean it's due to…

Read more »

Online shopping
Tech Stocks

Should You Buy Shopify Stock If the Rate Hike Cycle Slows?

Is SHOP stock a buy after its 72% drop this year?

Read more »

A bull outlined against a field

2 Canadian Stocks Set to Soar in a New Bull Market

Consider Sleep Country Canada Holdings (TSX:ZZZ) stock and another mid-cap bargain, as the bear market moves on.

Read more »

Gold bars
Metals and Mining Stocks

Better Buy: Newmont or Barrick Gold Stock?

If you think better days are ahead for gold miners, consider exploring gold stocks Newmont and Barrick Gold.

Read more »