Most investors focus on a company’s growth prospects when considering buying its shares. And understandably so. However, sales and profit growth aren’t the only way to increase a stock’s value.
Reducing the number of shares outstanding in a company is another, often overlooked, way to make existing shareholders’ shares more valuable. The company in question simply has to buy back its own shares on the open market and then withdraw them from circulation.
Apple’s share buybacks in numbers
Apple (NASDAQ:AAPL) was one of the better known names to promote this idea. Although the company pays a dividend, it rewards investors by purchasing its own shares rather than increasing its dividend payouts. Over the last four quarters, Apple spent $78.1 billion to buy back 456 million of its shares. To illustrate, Apple’s current market cap is $2.6 trillion and the company has nearly 15.58 billion shares outstanding.
Okay, the share buyback program doesn’t exactly have a huge impact on shareholders’ favor. However, keep track. This is a huge undertaking. It will take a lot to make a positive difference in his float. Given what’s possible, Apple’s buyback program is actually pretty impressive.
It’s also worth noting that the company overall continues to make net progress in reducing its stock offering to make remaining shares more valuable. Unlike many other companies, this company does not issue new shares as quickly as it buys back and retires existing shares. At the end of last year, there were about 2% fewer Apple shares outstanding than a year earlier.
Another bullish argument
Is the company’s stock repurchase program in itself a reason to buy Apple shares? No. However, the ongoing net repurchases of its own shares certainly reinforce the positive argument for owning Apple shares. The thing is, even if Apple itself were a net issuer of new shares, it would still be a great investment.
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James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in Apple and recommends them. The Motley Fool has a disclosure policy.
“Here’s how many Apple shares were bought back last year” was originally published by The Motley Fool