22% shareholder yield: Why did Warren Buffet buy HP in rage?
According to a regulatory filing revealed on Wednesday, Warren Buffett's Berkshire Hathaway bought about 121 million shares of computer maker $HP Inc(HPQ.US$ , valued at more than $4.2 billion and accounted for around 1.24% of Berkshire's portfolio (Top 11 holdings). HP stock jumped 10% after the market.
Why did Buffett place bet on HP? What is shareholder return and how to apply it? How could HP make around 22% shareholder return？
Let's take a closer look.
Why did Buffett buy HP stocks?
1.1 Highest shareholder yield of the S&P 500 Index
According to data compiled by Barron's, HP Inc. tops the shareholder return among the S&P 500 Index.
1.2 What is shareholder yield?
Shareholder yield is a ratio showing how much shareholders receive from a company's cash dividends, share repurchases, and debt reduction.
In everyday operation, a company can generate operating cash flow and accumulate retained earnings that are typically used for capital expenditure, to maintain production and operation. The company can also send its excessive cash back to its shareholders, by paying cash dividends or conducting share repurchases. Overall. such behaviors could boost the shareholders' returns in the long run.
For more details on share repurchases, please refer to:
Giant companies buyback in rage: What does it mean?
Giant companies buyback in rage: What does it mean?
1.3 What are the risks involved?
1. Volatility
Usually, stock dividends are related to the net profit of the company, but the share repurchases have no promise. Hence, the shareholder yield ratio may have some volatility.
2. Unsustainable
Even if a company can generate a high shareholder yield in the short term, the long-term shareholder yield depends on the company's fundamental. In that case, if the company's fundamental is getting worse, the current shareholder yield may not be sustainable.
1.4 How to apply?
Since the fiscal year 2017, the Free Cash Flow of HP Inc. has a CAGR (Compound Annual Growth Rate) of 12.19%, showing that the company is able to grow the cash generated for it to allocate.
According to the financial report,as of January 31, 2022, the Company had cash and cash equivalents of $3.39 billion, showing it still has the potential for shareholder returns but the trend is heading downward.
Since the beginning of 2017, $HP Inc(HPQ.US$ has a total return of 176% (purple line), outperforming the $S&P 500 Index(.SPX.US$ (yellow line).
Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only.
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Johnnie Worker : Good to know. Thx for the good content yo
blueberry89 : Blind leading the blind , don’t be a fool be a ape and stand against the rich and market makers .
70893058 blueberry89 : so.....if you have something against the "rich", why are you investing? Seems counterintuitive.
technimentalist : very useful info. thanks
Bull FYC : thanks. can relate and apply the same rationale when screening stocks to buy
HengHengHuat : follow the king of investment