Oracle, the $245 market cap software company, pays a $1.20 dividend. That works out to a 1.38% annual yield on its $91.51 stock price as of Oct. 5.
In addition, just like Microsoft and Apple, its buyback purchases are multiples of the dividend cost. This has led to a huge decline in share count in the last 10 years.
For example, for the 10 years ending May 2021, share repurchases have increased from $5.856 billion to $21.6 billion. Dividend payments went from $1.21 billion to $3.06 billion. So you can clearly see that buybacks have dominated its use of free cash flow.
As a result, the share count has fallen dramatically. It declined from 4.9 billion in May 2012 to 2.743 billion in the most recent quarter. That represents a drop of over 44%. This is one of the largest share count declines I have seen.
So what did this do to the dividend per share (DPS)? It rose from 24 cents in the year ending May 2012 to $1.04 in May 2021. As I said, the DPS is now at $1.20. So that is a gain of 3.333 times over 10 years, and 4.0 times over 10.5 years. This works out to 15.7% annually on a compound basis over 10 years.
Compare this to the dividend cost. It rose from $1.21 billion to $3.06 billion or just 153% over 10 years, much slower than the 333% gain in the DPS. In other words, whereas the DPS rose 15.7% annually, the dividend cost rose just 9.7%. This can be seen in the figure below.
Mark R. Hake, CFA
This implies a huge 61.8% gain in the DPS compared to its costs. And that is solely due to the huge buybacks at Oracle.
The same effect also happened with its earnings per share. This has therefore led to a higher stock price as well, given the same P/E ratio.
Micron Technology (MU)
Micron, the memory chip maker, has just initiated a dividend-paying program. This was announced on Aug. 12 and includes a new quarterly 10 cents per share dividend payment.
On an annualized basis, this works out to 40 cents per share or a dividend yield of 0.57% per annum.
However, the company has also been buying back its stock. I wrote about this recently in my InvestorPlace article, “Micron’s New Dividend With Its Huge Buybacks Will Boost MU Stock.”
“In the past fiscal year, the Cash Flow Statement shows that it spent $1.294 billion in share buybacks.”
“This results in a buyback yield that enhances the dividend yield. For example, if we divide $1.294 billion by the market cap of MU stock ($79.5 billion), the buyback yield works out to 1.628%. So if we add the 0.566% dividend yield to the 1.615% buyback yield, the total yield is 2.194%.”
So you can see this is an opportunity to get in on the bottom floor of a company that will be buying its own stock and enhancing its DPS growth.
These five stocks have both dividend and buyback payments that will benefit their shareholders. I have tried to show how the buybacks benefit dividend per share growth.
But these benefits only really accrue to long-term shareholders of the stocks. That is the rub. It is a way for the company to reduce its dividend costs, keep its DPS growing, and also encourage its shareholders to hold on for the long term.
By the way, there is also a net ROI gain, after taxes, for shareholders of companies with buybacks. I have written several articles about this, including one very detailed one for subscribers to my Total Yield Value Guide (see below).
It boils down to the fact that the share price gain is greater for buyback companies (that also pay dividends) vs. those that payout 100% of their FCF in dividends. Maybe I will write an article about this some time to illustrate it.