As you know, one of my favourite types of stock to look out for at Real Wealth are ‘special situation’ stocks. Because typically they present exceptional growth opportunity as a result of a special situation or event that arises. And share buybacks are just one such special situation.

A recent research note from Morgan Stanley confirmed this, revealing how markets have historically rewarded corporate actions such as buybacks, dividends, capex and mergers/acquisitions.

More specifically, stocks with buybacks have outperformed non-buyback stocks by a whopping 150% since 2000!?

So why is it that share buybacks are so rewarding to investors?

Share buybacks automatically make your share ownership more valuable. You see, companies use cash from their balance sheets to buy shares of stock in the open market, which are then retired and taken out of circulation. This means each remaining share represents a larger piece of the overall company.

So, if you’re holding a single share of this company (or 100 shares or any other number), you automatically own a larger percentage.

In other words, you’re entitled to more of the company’s profits… the company can pay larger dividends… and your shares represent a larger claim on the company’s assets.

So, with more benefits for each remaining share outstanding, stock prices of companies that buy back shares tend to increase in value.

When you think about it, share buybacks are not all that different from dividend reinvestment plans (DRIPs).

When a company pays you a dividend, you can choose to automatically reinvest that cash into new shares of stock through a DRIP.

If you reinvest your dividends, you steadily increase the number of shares you own. Over time, this strategy allows you to build a larger position, creating more income.

So, share buybacks essentially do the same thing as reinvested dividends. But they do it in a way that helps investors like you and me grow our wealth more efficiently.

Both enhance shareholder value tremendously!

You can make good money from stocks that buyback their shares!

For example…

NXPI Semiconductors (NASDAQ: NXPI) is the leader in automotive semiconductor tech.

The company has a significant market share in the automotive market, where it supplies microcontrollers and analog chips into automotive clusters, powertrains, infotainment systems, and radars.

All in all, the company sells its products to over 26,000 customers in over 30 countries and generates revenues in excess of $11billion.

Since 2021, the company has spent over $6 billion buying back its own stock. Over the same period, its shares have generated a+ 50% return (excluding dividends).

It’s not just international stocks that benefit from buybacks…

Take JSE-listed low-cost housing and memorial park developer Calgro (JSE: CGR).

In 2023, Calgro bought back over 20% of its shares.

Since then, its shares have jumped over 64%!

My point?

DON’T IGNORE the profit potential of share buybacks!

It’s one the most powerful ways companies can boost shareholder value. And it’s been proven to work.

To get the inside track on stocks like this, make sure you are signed up to Real Wealth. You can get on the list here.

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