When corporate Treasurers have money, lots of money in the bank one of the many options is to buyback stock. Companies issue stock to raise money to do something – buy another company, expand into a market, issue shares in the share purchase program or something productive. One of the options for the Treasurers is to buy back stock – the result will be fewer shares outstanding which translates a higher earnings per share (EPS) given the higher profits. Companies in general have been doing this for the past couple of years, however according to Stephen Gandel  of Bloomberg News June was the fifth month of total reduced stock purchases. The total buyback was $500 billion and companies in the S&P 500 were responsible for $120 billion of it.

The average bottom line of companies in the S&P 500 in the third quarter is expected to advance 4.5%, however profit is expected to advance 11% in the fourth quarter. One of the expectations was the government’s change in tax policy particularly in the cost of bringing funds back from outside the US. If the tax was lower, it was expected stock repurchases would increase $150 billion. It may happen but it may not happen.

Linking to dividend paying stocks, one of the options Treasurer’s have is the ability to repurchase shares because of making profits. While buybacks is the not the only reason why stocks go up, it has been a factor. If you buy for the dividend, there will be numerous reasons why the stock goes up and as long as the stock is profitable, those are good things to happen while holding the stock.

There are more questions than answers, till the next time – to raising questions.