I am trying to get a sense of the scale and significance of the share buyback according to the numbers. It seems that this is a huge deal, and I am wondering if others can confirm my reasoning. In essence, it is as though they are paying $2.38 per share, $1.73 in the form of the buyback, and $0.65 for the dividend.
Here are my facts:
According to the Q3 10-Q, there were 338.9 million outstanding shares of common stock as of September 30, 2013.
The buyback took place during this quarter, and 28.2 million shares of common stock were bought at an average price of $20.82.
Here is my reasoning:
28.2 million shares at $20.82 means they spent $587,124,000. Divide that amount by the number of common shares that were outstanding and you get $1.73 per outstanding common share as of September 30. That $1.73 is like a dividend in the sense that it is accretive to common shareholders to the extent of the value of the shares that the company now owns. Add the $0.65 dividend and you get $2.38. Alternatively, you might calculate the number based on the current share price, rather than the price they paid, and you would get $557.232m / 338.9m = $1.64 + $0.65 = $2.29.
Either way, this seems like a huge payout when you consider the total package.
Does anyone think I am missing something?
I calculate the buyback contributed $0.33 per current share in increased book value.
AGNC buys back shares when it is to the advantage of existing common stockholders. That occurs when the stock sells for 85% or less of book. So if they spent $587 million, they paid about $103.6 million less than book, which is equal to the gain for existing stockholders. Divide $103.6 by 310 million, and that equals $0.33 per share. The dividend does not enter into the calculation.
The company shrinks with the buyback, but remaining shareholders benefit greatly. Had they repurchased 50% of the outstanding stock, the buyback would have raised book by about $3.67, equal to a gain of about 15% just by buying back stock.
Ok, I follow your reasoning and agree that is a better way to look at it, assuming they sold assets to fund the buy back (which seems most likely). But that still means they did the equivalent of returning $0.98 of value to shareholders this quarter. That is like an iincrease from the $0.80 they returned last quarter the way I see it, rather than a cut. Moreover, it helps support the share price since they are out there buying aggressively.
I don't know about all that, but the way I see it is they bought back a bunch of stock which enabled them to give the remaining shareholders a higher dividend per share(because of less outstanding shares). Without the buyback the dividend would have been lower. Also, earnings per share will be higher when they announce 4Q earnings.
We will have to see how much of the stock buy back came out of cash flow and how much represented selling assets and thus shrinking the company. If so, you have to balance the fewer number of shares against the lower asset base that can be leveraged to produce future cash flow. Shrinking the size of the company may be prudent to lessen risks, but it also necessarily reduces the amount of cash flow for dividends. We'll just have to see how much assets they sold.
The larger question is what they will (intend) to do with the reacquired shares. When they reacquire shares it becomes added to the ‘Treasury Stock’ account. Whatever the plan or lack of one__it provides a number of options. Obviously if the accumulated cash had been distributed directly to shareholders__options are removed. Examples of Treasury stock use would be for distribution to employees through stock option plans. Share availability for an acquisition of another company. Protection against an entity acquiring voting leverage.
However, the most probable is resale later or retirement of the shares. The former could be viewed as a form of hedging.
The share buyback really is an effective way of protecting net asset value. Imagine if you have a NAV of $25/share and say for simple math purposes your company has 100 shares for a market cap of $2500. If you buy back 10% of the company at $20 per share you have spent $200 and your market cap is now $2,300. But given that the shares outstanding have decreased to 90 your book value per share has increased to 2,300/90 = $25.56/ share. It only makes sense that the company continues to repurchase shares as long as the market price is below NAV.
This is my thought:
REITs can pay dividends on profits but not on assets they get back from their investments. They can return the capital to shareholder and the borrowed funds to banks. But this means they want to reduce their businesses. AGNC's on-going profit can only pay $.65 dividend per share. The assets returned from AGNC's investments need to be reinvested in some way.
- AGNC buys back shares at below book value prices. This will improve the book value of the remaining shares.
- The current dividend offers about 13% annual return to the current share price. So each buy back share is equivalent to earning 13% annually for the company.
- In the current market condition, there is no way or it is too risky (given too many variables with the outcome of Fed's QE III decision) to make 13% returns in the agency market. So the management turns around make money by buying back shares in stead.
i mean 2.5 percent improvement to NAV + future earnings improvement. assumes 10% outstanding share repurchased at 20 pct discount. so agnc bought back 7 pct in q4 ... so the number is a lil less but you can see it has some value to buyback shares.