Thomson Reuters Corp. Is Buying Back Millions of its Own Shares

Thomson Reuters Corp. (TSX:TRI)(NYSE:TRI) is everything investors want. Are shares too pricey to buy?

| More on:
The Motley Fool

Thomson Reuters Corp. (TSX:TRI)(NYSE:TRI) describes itself as “the world’s leading source of intelligent information for businesses and professionals.” In late September it showed its confidence in that belief by sinking millions of dollars back into company shares.

In total it lined up agreements to purchase up to 6.5 million of its common shares through private transactions. That equates to roughly $350 million.

The latest agreements are just a drop in the bucket for Thomson Reuters’s bigger buyback plans. Already, it has an existing normal course issuer bid, which allows it to buy back up to 37.5 million common shares between May 30, 2016 and May 29, 2017.

If the company reaches its target, it will have bought back just over $2 billion worth of shares in just 12 months. That’s 5% of the entire $40 billion company.

Thomson Reuters’s management team is clearly bullish on its long-term prospects. Should you be?

Rewarding shareholders for years

Since 2004 Thomson Reuters has returned about $14 billion to shareholders through dividends and buybacks. Whether it’s through capital appreciation or dividend income, long-term investors have done well holding the company’s stock.

Even after a multi-year rise, shares still yield 3.2%. With a big buyback also in place, shareholders are gaining from two effective ways to tap into Thomson Reuters’s growing earnings. Guidance for 2016 calls for single-digit revenue growth, EBITDA margins of 27.3-28.3%, and free cash flow of $1.7-1.9 billion.

The company is going through a bit of a transition, but the core business remains strong. Profitability is slowly improving, helping push higher free cash flow generation. With nearly 90% of its business recurring, there’s plenty of stability.

How are shares priced?

Analysts expect full-year 2016 earnings of $2.02 and $2.30 in 2017. That means Thomson Reuters stock is trading at 23.4 times next year’s earnings. That’s certainly not a bargain, but it appears as if investors are willing to pay a premium for a high-quality, growing business that has a proven history of rewarding shareholders.

Still, it’s tough to argue that the stock isn’t pricey. Much of its gains in recent years have also stemmed from a higher valuation, not necessarily the underlying financials.

For example, over the last 12 months, Thomson Reuters stock has grown by 5.73%. It’s EV/EBITDA valuation, however, has shot up by 14.89%. That means that the increase in multiple that investors were willing to pay expanded far faster than the underlying fundamentals.

generate_fund_chart

If you’re looking to invest in Thomson Reuters, it’s best that you wait until things cool down. Don’t wait until things get too cheap, however; a high-quality business like this hardly ever falls far.

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.

Fool contributor Ryan Vanzo has no position in any stocks mentioned.

More on Dividend Stocks

You Should Know This
Dividend Stocks

How to Convert a $300 Monthly Investment Into $338 in Monthly Income

If you want a certain amount in monthly passive income, invest a similar amount today and leave the rest to…

Read more »

Increasing yield
Dividend Stocks

3 Income Stocks With Big Yields to Consider in April 2024

If you haven’t yet made your March investments, here are three income stocks to buy the dip and lock in…

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog
Dividend Stocks

RRSP Investors: Don’t Miss Out on This Contribution Hack!

This hack has so many benefits for you -- not just when you put it in your RRSP but for…

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

Passive Income: 2 Safe Dividend Stocks to Own for the Next 10 Years

Dividend stocks such as Manulife and Fortis can help you generate a stable and recurring passive-income stream.

Read more »

Young woman sat at laptop by a window
Dividend Stocks

3 Dividend Stocks Everyone Should Own for the Long Haul

For investors looking for top-tier dividend stocks to buy and hold for the long term, here are three of my…

Read more »

Payday ringed on a calendar
Dividend Stocks

3 Dividend Stocks That Pay Me More Than $54.57 Per Month

These three dividend stocks have done me well over the years, so let's look at how much I've gotten in…

Read more »

Golden crown on a red velvet background
Dividend Stocks

Dividend Royalty: 3 Fabulous Stocks to Buy Now for Decades of Passive Income

Rogers Communications stock and Canadian Natural Resources stock could pay you dividends for decades to come.

Read more »

Dividend Stocks

The Top Canadian REITs to Buy in April 2024

For growth and dividends this April, look to these two REITs that have quite the promising present as well as…

Read more »