According to Stephen Gandel of Bloomberg News one of the easy strategies of the past 10 years is not performing well. When a profitable company has excessive cash they have options – buy another company, reinvest within their own company, give a special dividend and or buy shares on the open market thus making the remaining shares more valuable. An easy strategy has been to invest in companies who bought more than 5% of their outstanding shares, had you done this, the portfolio would have beaten the index in 6 of the past nine years often by a wide margin. In 2013, the portfolio was up 40% while the index was up 13%.

Before you rush over to change your portfolio, it appears the strategy is not working well as the basket has declined this year. The primary reason is interest rates are moving upwards. However there is hope for an increase of buybacks. In President Trump’s tax plan the tax rate to repatriate money many corporations have outside of the US is scheduled to fall from 35% to 15% which will mean a tax savings of multiple millions for corporations. Unlike the sound bite from Washington which suggests the companies could raise pay packets for their employees, Wall Street firms believe share repurchase could rise to $600 billion which is up $100 billion from its current quarterly run rate. Will the strategy of buying companies who repurchase a minimum 5% of their shares continue to work we do know the President and Congress are trying to ensure it is viable strategy.

Linking to dividend paying stocks, no one does know, but we do know those companies are worth considering buying because they are profitable and are sitting on large sums of money in offshore accounts. As dividend buyers we do not have to question if this is a good thing or not, should the company be reinvesting in expanding or improving their business or paying dividend shareholders first. Our concern is year over year, is our dividend safe, if yes then you can continue to hold the company shares.

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