Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you’d like to add some companies executing significant stock buybacks to your portfolio, the PowerShares Buyback Achievers could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously.
ETFs often sport lower expense ratios than their mutual fund cousins. The PowerShares ETF’s expense ratio — its annual fee — is 0.71%. The fund is fairly small, so if you’re thinking of buying, beware of possibly large spreads between its bid and ask prices. Consider using a limit order if you want to buy in.
This ETF has performed well, handily topping the S&P 500 over the past three and five years. As with most investments, of course, we can’t expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.
Not all stock buybacks make sense. If a company is buying back its stock when it’s overvalued, it’s destroying shareholder value. But sensibly timed buybacks can benefit shareholders, reducing the total share count and thereby boosting the value of remaining shares.
More than a handful of buybacking companies had solid performances over the past year. Motorola Solutions Inc (NYSE:MSI) surged 25%, as it has worked on shrinking its debt and growing its free cash flow. The stock is trading near a 52-week high, and yields about 1.7%. It operates in the field of public safety equipment and its government contracts business grew 12% in 2012. It also makes mobile computers such as its Xoom tablet and Droid Xyboard, which have proven popular in the business market. The company’s fourth-quarter report featured solid earnings gains and revenue up as well.
Norfolk Southern Corp. (NYSE:NSC) advanced 13%, and is also near its 52-week high. Yielding 2.7%, it’s a dominant force in the South, where much of our economic growth potential lies. Our recovering economy should boost business for railroads, which offer much more cost-effective transportation than trucks. The company is also an environmental leader, operating its trains on renewable diesel fuel and developing hybrid locomotives. It’s spending heavily on its infrastructure, and has topped performance expectations. One challenge is the decline of coal, as coal has made up a significant portion of Norfolk Southern Corp. (NYSE:NSC)’s business.
Applied Materials, Inc. (NASDAQ:AMAT) gained 6% and yields 2.9%, which includes a recent 10% dividend hike. It’s poised to benefit from an expected uptick in semiconductor demand globally, and its growing involvement in areas such as solar power also bodes well. There are already promising signs for the semiconductor industry. With a forward P/E of 14, the stock appears appealing. Applied Materials has been named one of the most ethical companies by the folks at Ethisphere.