This year, dividend distribution and buybacks have been the high points in the corporate space. The trend is evident from Goldman Sachs’ comment that the “S&P 500 companies are buying back more than 3% of market cap, 2x the pace from the 1990s, and dividends are up 50% since 2010”. The research agency also sees 80% of the S&P 500 companies undergoing share repurchase programs.
As per CNBC, since companies can access cheap financing due to the Fed’s vow to keep ultra-low interest rates in the U.S. economy for certain period, they can easily fund buybacks well into the future.
Yahoo! Buyback in Focus
Most recently, the Internet portal behemoth Yahoo! Inc. (NASDAQ:YHOO), in accord with other S&P 500 partners, raised its stock-buyback plan by $5 billion. Since January 2012, Yahoo has spent $5.3 billion in buybacks, including $1.7 billion in the third quarter.
Prior to the recent authorization, Yahoo approved a buyback of $5 billion worth of shares in May 2012, under which nearly $324 million was available as of September 30, 2013.
A share buyback program helps a company to reduce its outstanding share count, thereby increasing earnings per share and return on equity. Apart from bolstering shareholder value, this strategic move will also lift the relatively undervalued share price.
Market and ETF Impact
Following the announcement, Yahoo share prices increased 2.86% in a single trading session on November 20th on volume of around 32,000,000 shares, which was far higher than the average trading volume of around 19,000,000 shares a day (see 3 Internet ETFs Leading the Tech World Higher).
Yahoo has decent exposure in funds like First Trust Dow Jones Internet Index (FDN) PowerShares NASDAQ Internet Portfolio (PNQI) andPowerShares Dynamic Media (PBS).
Though the funds slipped in the trading session in contrast to one of their component’s outperformance, investors might consider buying the products on the recent dip. The trio has a top Zacks ETF Rank of ‘1 or 2’ and could be interesting picks for investors.
First Trust Dow Jones Internet Index (NYSEARCA:FDN)
This is one of the most popular ETFs in the technology equities space with AUM of nearly $1.7 billion and average daily volume of 250,000 shares. The fund tracks the Dow Jones Internet Index, a cap weighted benchmark of U.S.-based Internet companies, holding 41 stocks in its portfolio.
The ETF has a concentrated approach with more than 50% of assets in its top 10 holdings, thereby calling for modest company-specific risk. Yahoo is the sixth largest component of FDN with 4.89% allocation.