Dividend.com: Anadarko's Big Buyback

The problem with buyback announcements is that the company is at its leisure to follow through with them.
Author:
Publish date:

Anadarko Petroleum Announces Huge Stock Buyback

Anadarko Petroleum

(APC) - Get Report

is out with news that the company is looking to buy back up to $5 billion of its shares over the next three years. This action would take away nearly 20% of the company's outstanding shares.

Companies like to do buybacks to boost EPS numbers -- given the same amount of earnings, less outstanding shares translates into a higher EPS number.

The problem with buyback announcements is that the company is at its leisure to follow through with them. Unlike a dividend payout, which must be paid and is recorded each quarter, a buyback announcement can often amount to nothing more than an empty press release that gives the stock price a quick jolt higher.

We're not claiming that Anadarko is trying to scam anyone, but again, it is entirely up to the company to follow through on such an announcement. Indeed, as financial conditions within a company change, it may call an abrupt halt to its previous buyback plans. The only true way to find out if a company has followed through in its buyback plan is by looking at its quarterly report, in which you can observe results from buybacks as they occur.

We definitely prefer companies that pay a dividend, but buybacks can work if a company actually carries them out. We recently removed shares of Anadarko Petroleum from our "Recommended" list back on July 23, at a price of $62.84. At this time, we have no plans to change our ratings. The company's dividend yield is currently 0.62%, based on last night's closing stock price of $57.84.

Anadarko Petroleum is not a recommended dividend stock at this time, holding a Dividend.com rating of 3.1 out of 5 stars.

American Eagle Outfitters' Women's Apparel Sales Lag

American Eagle Outfitters

(AEO) - Get Report

reported sales for the quarter that fell 2% to $688.8 million. Same-store sales dropped 9% as well, and are down 6% this month so far.

Management pointed to the miss in women's denim fashions as a key to the drop this quarter, but feels it can correct the issue as the company heads into 2009. The company is also managing to the current macro environment with tight inventories, and will continue to explore expense-cutting opportunities.

At this time, management is providing third quarter earnings guidance of 31 cents to 36 cents per share, compared to 45 cents per share last year. This guidance reflects a view that the business environment remains challenging through the second half of this year.

We think the risk/reward with the stock is starting to get a bit better. We like the stock's 2.91% dividend yield -- based on last night's closing stock price of $13.74. For now, we we will closely monitor the company's progress and let everyone know when we see an opportunity for the stock to make it to our "Recommended" list.

American Eagle Outfitters is not a recommended dividend stock at this time, holding a Dividend.com rating of 3.0 out of 5 stars.

Sanderson Farms Misses Earnings Number, Blames Weak Economy and Higher Feed Prices

Sanderson Farms

(SAFM) - Get Report

is out with its quarterly results, and the company came in with a loss of 18 cents, which is below the breakeven that analysts at Thomson Reuters had been looking for. The company did see an 18% jump in revenue to $466.9 million.

The company is blaming a significant decline in restaurant traffic due to weak economic conditions and higher fuel prices, as well as higher feed costs. For the remainder of fiscal 2008, management believes market prices will continue to reflect soft consumer demand trends and the uncertain economic outlook.

The volatility in poultry producers forces us to look at shares more from a cycle standpoint, more than any other factor. It's difficult to put stocks like this away and hold onto them forever.

Investors have to pick their spots wisely, and right now, we think the spot to be is on the sidelines. The company's 1.42% dividend yield -- based on last night's closing stock price of $39.49 -- is not enough to cushion a stock price that may lag at this point.

Sanderson Farms is not a recommended dividend stock at this time, holding a Dividend.com rating of 3.3 out of 5 stars.

Darden Warns on Earnings

Darden Restaurants

(DRI) - Get Report

is giving investors some indigestion today, as the company warns its next quarter will fall short of expectations. The company is forecasting fiscal first-quarter earnings between 60 cents and 62 cents per share, below the 75 cents Thomson Reuters analysts estimates.

Management predicted fiscal first-quarter same-store restaurant sales at its Red Lobster, Olive Garden and Longhorn Steakhouse locations will decline 1.1%. The new 2009 EPS forecast is in the range of $2.68 to $2.81 per share, below the previous range of $2.90 to $2.93 per share.

We have removed shares of Darden Restaurants from our "Recommended" list, and will be monitoring the shares closely. The economic conditions in the restaurant business are super competitive, with consumers looking for the best deals on the nights they choose to dine out. This situation will take time to turn around, but we think Darden will eventually pull it off. For now, we are moving to the sidelines on Darden Restaurants, which has a 2.23% dividend yield, based on last night's closing stock price of $32.26.

Darden Restaurants is not a recommended dividend stock at this time, holding a Dividend.com rating of 3.3 out of 5 stars.

Be sure to visit our complete

recommended list of the Best Dividend Stocks

as well as a

detailed explanation of our ratings system

.

At the time of publication, the authors had no positions in stocks mentioned, although positions may change at any time.

Tom Reese and Paul Rubillo are senior editors of Dividend.com. Visit Dividend.com for more dividend stock ratings, picks, news, and analysis for long-term and income-seeking investors.