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Congress Asset Management Senior Portfolio Manager Peter Andersen on how investors can benefit from companies’ stock buybacks.
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More than 200 companies was we mentioned have increase their dividends.
And sort of this frantic move to move up their payout dates ahead of the fiscal cliff because taxes may go up on dividends but given the prospect of higher taxes.
Will dividends actually be dead on arrival in 2013 and what then -- the next big thing joining us now in a Fox Business exclusive is Peter Anderson at the senior portfolio manager at congress asset management.
You're so not on the dividend -- I respect that because.
It is a crowded trade but if not dividends then what what stocks should people be picking and what characteristics -- they have.
Well Liz you're absolutely right I I'm not on that train I had been on that train it was a great -- I think it's time to get off.
You know when now we finish this fiscal cliff matter.
I think there will be some unintended consequences in one of them I'm projecting will be.
He increase in stock buybacks.
Because of the tax situation.
If you think like -- CF vol CFO is going to be looking to see what the alternatives will be.
To use that cash on the balance sheet and I think buybacks are very very attractive alternative and they will be in 23 -- But they come.
As this market surprised sometimes -- don't they -- -- you all of a sudden we'll see a headliner market flash on Dow Jones or will hear about it we'll tell you guess what.
Company X is announcing the stock buyback you often see.
The stock popped on that news I talk to CEOs all the time -- tell -- their shareholders are constantly pushing them to do with stock buyback.
Explain to -- investors why it makes the stock moved to the upside.
Well yeah and let's see if we can help people out there because I you have a a number of questions the first one is.
They do have to file in disclose that they are planning to do share buyback so it isn't something that comes out of the -- I'll watchful investor can actually go in research and see which companies have.
Pre announced that they will be buying back stock now that -- -- always guaranteed.
But they must file in disclose their intentions that there authorized a buyback that stock so that's one way you can start.
Looking at things.
And then the next thing as once they have announced that.
They -- -- jury is out frankly whether or not it always -- the stock price but simple math.
Will tell you that if there's they're going to take out perhaps 10% of the stock.
-- I'll speak well now there's a lot of caveats here for instance you have to make sure that.
If you're assuming everything else in the company is is steady -- so to speak and -- if they're taking 10% out of the outstanding shares and that.
Roughly approximates two about a 10% EPS -- so therein lies the attractiveness is that you're saying if everything else is stable revenues don't increase no changes but they do buy back stock than the EPS should increase.
Proportionally to that amount that they're taking out that's how the math -- Right so so just to explain to our viewers Peter Anderson shutting the door on the dividend play.
Although you used to train analogy now but earlier years say I'm shutting the door on the dividend play and now you're saying spot companies that either have pre announced that they will -- a share about all there you are Peter your slamming the door don't hurt your finger.
Or.
You can actually look for signals.
The companies may be sending out may be telegraphing that they will for example.
The announcing the share buyback and and it it amounts to what a couple of if they have a lot of cash on the balance sheet that could actually use that cash to do so.
That's exactly right highlight the the fingers are slammed analogy we all hate we -- hate to have that happen to us right.
-- here's what I've done you can look it to see what amounts their authorize them.
I'm sorry let's put up the three names that you feel art art the next candidates as we finish up Bank of New York JPMorgan WebMD why quickly.
Because they have authorize a certain amount of share buyback and they have a certain amount of cash on their balance sheets and that is the most efficient use of their cash right now if you just simply say.
How can I possibly boost my EPS.
We had the least amount of my cash used to do that.
These companies come up.
And so what I'm doing as I'm putting my CFO hat on imagining how -- would be one of these meetings.
And trying to convince people that this is the right way to use our cash for the next coming year.
Peter great information thank you so much we're gonna put the names and how to spot these companies up on our FaceBook dot com slash was -- page we appreciate it good to see you.
-- -- a senior portfolio manager congress asset management quick.
