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Stock Buybacks: Another Kind of Dividend

"The valuation [of the share's price] trades at a discount to its historical average and we expect the company to resume its buybacks/dividends [italics added] given the strong cash flow position of $5 billion/year," they concluded. Like Cramer and Link, I would anticipate a dividend increase to be announced as soon as the January earnings conference.

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Stock buybacks are what shareholders want company leaders to pursue. As was recently noted in an article at The Wall Street Journal, "Investing in the existing business comes first," said Mike Jackson the CEO of AutoNation (AN).

CEO Jackson went on to say, "But you can create a lot of value when you buy stock when there are dislocations in the market." During the past 12 months AutoNation has used almost $750 million to buy back shares of its stock. That, according to the Journal article, reduced the company's outstanding shares by 15%.

As the chart below clearly demonstrates, this has boosted the share price and helped its year-over-year quarterly EPS growth. AN ChartAN data by YCharts

According to the company's intuitive Web site AN is the largest automotive retailer in the U.S. Recently the CEO announced that AN will release its financial results for the fourth quarter and year ended Dec. 31 on Thursday, January 31, 2013.

With the dramatic correction in the share price of AN from its $48.56 high on Oct. 19 to currently below $40, it wouldn't surprise analysts if CEO Jackson and the board continue the tradition of buying back the company's shares.

Other publicly traded standouts of the DJIA like Intel (INTC) are likely to announce stock buybacks. INTC, which is currently sitting on total cash of $10.5 billion, might be one of them when it releases its earnings report on Jan. 17. This as well as its shift toward mobile devices may boost its share price.

Expect to see publicly traded companies buying back their shares directly in the months ahead. If you happen to own shares before the announcements you're likely to receive something akin to a tax-free dividend in the form of a sudden surge in the stock's price.

Anticipate thoughtfully, do your due diligence and keep your fingers crossed.

At the time of publication the author has positions in INTC and SWHC.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

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Stock quotes in this article: SWHC, UTX, AN 

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