Broadcom announced on Thursday that it would be buying back shares of its stock, spending around $12 billion in the process. This plan starts now and will last through Broadcom’s 2019 Fiscal year – which ends on November 3, 2019. The company’s Chief Financial Officer, Tom Krause stated that “the initiation of a stock repurchase program enhances our capital allocation strategy and provides us with a complementary tool to deliver value to our shareholders”. Krause also mentioned that Broadcom will be maintaining its “policy of delivering 50% of trailing 12-month free cash flow to shareholders in the form of dividends while adding the ability to use the balance of our free cash flow not only for acquisitions but also for opportunistic buybacks.”
A stock buyback is something that shareholders will welcome with open arms. Typically when a company buys back its own stock, it is because the company believes its stock is undervalued, thus taking shares off of the open market for investors to buy and sell. This usually results in the price going up, which means shareholders are going to be making more money off of the Broadcom stock. Broadcom is doing this while also keeping its dividend intact. Broadcom currently pays an annualized dividend of $7 (paid quarterly) for a yield of 2.91% based on the stock’s current price.
Broadcom announced this buyback after it failed to acquire Qualcomm, in a hostile takeover earlier this year. It ended with President Trump formally blocking the acquisition with an Executive Order in early March. Since then Broadcom has decided to step back, slightly, on acquisitions and instead are returning some cash to its shareholders. Qualcomm, on the other hand, has replaced its board chairman, Paul Jacobs who is actually looking to get a group of buyers together to take Qualcomm private right now. This is something that Jacobs has been working on since the Broadcom bid fell through, though many board members were not too happy with that, and neither were shareholders as the stock dropped sharply on news, in March. With recent reports yesterday, the stock is up sharply, so it appears shareholders have had a change of heart. Since the merger fell through, the two companies have been moving in different directions. Broadcom, however, did still make good on its promise to bring its headquarters back to the US, and are now based in San Jose, CA.