Companies can allocate capital in different ways to create shareholder value. However, one method stands out through the eyes of legendary investor Warren Buffett.
The CEO of Berkshire Hathaway said at the company’s 2022 annual shareholders meeting: “There is nothing better than buying your own business if you buy it at the right price.” It is a returnable product. Basically, by opening the market, a company can buy back its products, reducing the number of good products.
Therefore, as the relative share increases, the remaining shareholders will have more shares in the company.
He used the example of American Express to illustrate the power of purchasing.
Buffett said he bought Berkshire’s last shares of Amex around 1998, when he owned 11.2% of the company’s payments.
“We now own 20% of American Express.
“You better have assets that you like and that your members are interested in.
Today, wealthy financial institutions are spending millions back. Here are three special benefits.
Apple Inc. (NASDAQ: AAPL)
According to S&P Global, Apple will spend $94.1 billion on buybacks in 2022, up from $88.3 billion in 2021.
But this is not surprising. Command a $2 trade limit.
With $75 trillion, Apple is the largest company in the United States with the number
and is known to have a large amount of cash. As of April 1, Apple’s cash, cash equivalents and stock market totaled $166.3 billion, according to the latest financial report.
Apple is also a favorite of Buffett – the largest stock holding in Berkshire’s portfolio.
He said about Apple at Berkshire’s shareholders meeting recently, “We know we’ll get more interest if they continue to buy stocks, no insider information – but actually, that seems to be the way to bid.” year.
Alphabet Inc. (NASDAQ: GOOGL)
Alphabet, Google’s parent company, was founded in 2015 to give Google room for crazy ideas. The company has a wide range of business investments, from managing business research to self-driving cars and life sciences.
S&P Global reported that Alphabet’s returns will grow from $50.3 billion in 2021 to a total of $59.3 billion in 2022.
Despite being a huge business, Alphabet’s stock has changed: The stock is up 20% in 2023, but still less than 4% from a year ago.
Some see the growing popularity of OpenAI’s chatbot ChatGPT as a threat to Alphabet’s business. But Alphabet isn’t standing still as the company continues to develop its own artificial intelligence (AI) offering.
“In March, we launched an experimental conversational AI service called Bard,” Alphabet CEO Sundar Pichai said on a recent conference call. “We added the PaLM model to make it more powerful, and Bard can now help people with operations and software development, including code generation.
Meta Platforms Inc. (NASDAQ: META)
Shares of Facebook’s main Meta Platforms are underperforming in 2022, and the company has taken advantage of the low price through buybacks. Meta repurchased $31.6 billion worth of shares last year, according to S&P Global.
And now stock is back. Meta shares are up more than 80% so far this year.
The first quarter report helped increase the attractiveness of the stock. For the quarter, the company earned $2.20 per share on revenue of $28.65 billion. Both figures exceeded Wall Street’s expectations.
Meta continues to expand its user base. In the first quarter, Facebook’s monthly users increased by 2% year on year to 2.99 billion. Among app families, the Meta family saw monthly users grow 5% year-over-year to reach 3.81 billion.
The bottom line
Remember, Buffett said that purchases should be made at the “right price.” So just because a company spends a lot of money on buybacks doesn’t make it a good investment.
Also, companies have other ways of paying regular dividends to investors. If your goal is to generate a steady stream of income, you may want to research dividend stocks both inside and outside the market.