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Dividends and Buybacks

March 11, 2013 – 5:56 pm

114918As written in a recent Wall Street Journal in 2013 companies are going to increase both dividend payouts and stock buybacks to record amounts. Dividend payouts will reach or exceed $300 billion and stock buyback announcements for February alone was $117 billion, the highest monthly total since 1985. This effort is very supportive for the stock market and will help keep stock prices stable at the very least.

The dilemma is that announced buybacks does not mean that they actually have to buy back the stock. Corporations can change their mind about buybacks just as they can about dividends. The announcement of a buyback or increase in dividends is just that, an announcement, and although that in itself is positive for stock prices do not assume it is a done deal.

I do not mean to rain on the parade of these positive events for investors but it is always prudent to look at ‘gift horse in the mouth’. For all you younger people, you can tell how old and healthy a horse is by looking at its teeth, so that is where that old saying came from.

Good Trading
Steve Peasley

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