There are many ways that companies can reward shareholders. Most maturing companies will pay out a part of their earnings in the form of dividends. Those dividends can be spent, kept as cash, or reinvested.
While less mentioned but possibly more popular, many companies have implemented share buyback plans. This reduces the total shares outstanding, which rewards remaining shareholders. It also helps a company report higher earnings per share, even if their overall earnings don’t improve.
One company showing growing earnings and rewarding investors with a bigger buyback right now is Cisco Systems (CSCO). Somewhat overlooked in the tech space right now, the networking giant continues to find new ways to grow as the Internet evolves to include concepts such as the Internet-of-Things (IoT) and the metaverse.
Shares of Cisco have outperformed the S&P 500 by 3 points in the past year, yet still trade at just 15 times forward earnings, following a 37 percent jump in earnings growth.
Action to take: Besides looking inexpensive here, investors can buy a growing dividend yield with a starting rate of 2.7 percent right now. And with share buybacks, a higher price will likely be the result over time.
For traders, the June $60 calls, last going for about $1.40, offer high double-digit returns in the coming months, as a share buyback tends to help keep prices moving higher.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.