Despite falling into negative territory in early trading, stocks bounced off their morning lows and edged into positive ground throughout most of the afternoon trading. It seemed that there had been a bit of a shift in investor sentiment early, even though the market received some underwhelming economic data to start the day. However, that momentum eventually reversed course once again, and stocks sold off into negative territory by the close.Home Builder Earnings
Before the opening bell this morning, home builders Lennar Corp. (LEN) and KB Home (KBH) reported their third quarter earnings. Both companies reported a rise in profits for the most recent quarter, topping Wall Street expectations. As such, both stocks rallied today, finishing in the green by the close.
Aside from the home builders, shares of Applied Materials (AMAT) rose in the day’s trading after the company announced a merger with Tokyo Electron. The two firms will merge to form a new $29 billion semiconductor company. Also surging today were shares of Eastern Insurance Holdings (EIHI), after it was announced that ProAssurance (PRA) would be acquiring the company for $24.50 per share.
In other news, The Jones Group (JNY) shares got a boost from rumors that private equity firm KKR is looking to acquire the fashion apparel and footwear company. Moreover, Illinois Tool Works (ITW) shares rose after it announced that it is planning to divest its industrial packaging segment.Stocks on the Decline
In negative territory today ere shares of Carnival Corp (CCL) after disappointing third quarter earnings. Also, Microsoft (MSFT) shares edged lower after unveiling its newest tablet product, the Surface 2.
Be sure to check the Dividend Daily for all the latest earnings reports, analyst moves, and much more.Dividends and Share Buybacks: What’s Best For an Investor?
Lately, I have been reading articles and listening to presentations about the benefits of share buybacks over dividend payouts. To many investors, share repurchases are seen as an ideal capital allocation strategy that a company can utilize to ensure that shareholders get the best return on their investments. Investors with this point of view will point to the tax advantages and other capital gains benefits that share buybacks provide over dividend payouts. However, I maintain the position that dividends are far away a better allocation of a company’s capital, and much more shareholder friendly.
Though share buybacks seem like a great way to enhance shareholder value, they are typically done for the benefit of insiders, not us retail investor shareholders. Moreover, share buybacks are controlled solely by the corporation; we cannot do much to influence at what share price a company will buy back shares. So, the repurchase may be done recklessly and irresponsibly at a level that isn’t best for the company or shareholders. Also, share buybacks are difficult to measure to see the true yield that they are providing investors. For these reasons, as well as many others, the allure of share buybacks can be misleading.
Ultimately, dividends are the best way a company can return capital to shareholders. While you might be bullish on the announcement of a large share buyback program by a company, look for a company that shows more of a willingness to pay out dividends. By no means are share buybacks totally unwanted, but investors should want companies that are more inclined to pay directly to us shareholders. In the end, this strategy of paying dividends over share buybacks gives the investor a little bit more control in seeing the returns they desire for their long-term investing strategy.
For more on dividends and share buybacks, check out Dividends vs. Share Buybacks: It’s a No Brainer.
Thanks for reading everyone! Be sure to check us out on Twitter @dividenddotcom. We will see you tomorrow.
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