Special Report: The Powerful Impact of Investing in Canada's Share Cannibals

How such a strategy trounced the TSX since 2014

Despite running a website and a newsletter called Canadian Dividend Investing, your author is not necessarily opposed to buybacks.

You’d be surprised how many people assume I hate buybacks without reading a word that I’ve written about the subject.

In fact, as I look through my portfolio, I see a theme pop up. Many of my holdings are companies that offer both steadily increasing dividends and consistent share buybacks.

However, not every share buyback is the same. Business history is littered with companies that repurchased shares when they were expensive.

Starbucks, for instance, took on debt and aggressively repurchased shares in 2023, when the stock was over $100. These days, shares are below $80 each.

IBM consistently repurchased shares in the 2000s and 2010s. The stock trended lower for years despite this effort to maintain the share price.

Bed Bath and Beyond famously spent $5.4B in share buybacks from 2014 through 2022. It was all for naught; the company went bankrupt in 2023.

Similar stories have happened here in Canada. Air Canada was flush with cash in 2015-19 as strong demand and weak oil prices buoyed the business. It repurchased stock when its shares were high — especially in 2018 and 2019. The company then needed government assistance to survive in 2020.

BlackBerry, which is down 69.3% in the last decade, repurchased shares in 2016, 2019, 2021, and 2023. All of those buybacks were done at much higher prices than today’s price.

There are literally hundreds of examples of bad share buybacks. The fact is many companies absolutely stink at repurchasing their shares, making common errors like aggressively buying back shares when times are good (and when the stock is high) and sitting on their hands when times are bad.

In fact, some companies are even worse than this. They repurchase shares when times are good and are then forced to issue more shares when times are bad. Talk about buying high and selling low.

This fact alone is enough for me to confidently say that share buybacks are not functionally the same as dividends. A $1 dividend is always worth $1. $1 spent on share buybacks is often revealed to be worth far under $1 just a few years later. These buybacks actively destroy shareholder value.

The kind of buyback I like

As mentioned, I’m not opposed to buybacks. I’m just opposed to bad ones. Which is why I want the companies I own to do their buybacks in a certain way.

I think dollar cost averaging into excellent stocks is pretty much a surefire way for the average investor to get wealthy over time. It’s an incredibly powerful concept.

I feel the same way about share buybacks. Companies that repurchase shares consistently are worth far more than companies that do it sporadically. It’s the equivalent to dollar cost averaging, and it’s an excellent strategy.

This discipline creates a few advantages. Firstly, it ensures shares are repurchased consistently, creating value over long periods. It also virtually guarantees that we can’t look back and poke holes in previous buybacks, because the average share buyback works out just fine. Consistent buybacks will ensure a company repurchases at least a few shares when they’re depressed.

Companies with consistent share buybacks offer another, more hidden advantage. A steady buyback is a signaling mechanism for companies that are consistently profitable, who have steady enough cash flow to make share buybacks even when the overall economy doesn’t look great.

You’d think such a rule would limit opportunities in the buyback world, but it really doesn’t. There are cyclical companies with a demonstrated history of repurchasing shares when times are good and when times are bad, including sectors like energy, auto parts, consumer discretionary, and even general merchandise retailers. These are all sectors that hit the dumps when the underlying economy struggles.

What these companies do have in common is the following:

  • Solid balance sheets with healthy cash balances

  • Conservative managers who don’t take on too much debt

  • They usually have controlling shareholders, although not always

  • A long-term business mindset, rather than a financial engineering mindset

In other words, this is exactly what we’re looking for.

Remember, this is how I invest:

I’m a long-term owner of businesses, and share cannibals exhibit many of the same characteristics I’m looking for.

The powerful simplicity of investing in share cannibals

I’ve put together a detailed report that highlights the powerful simplicity of investing in companies that consistently devour their own shares. 

Some highlights of this 42-page report include:

  • Math showing the impact share buybacks have on earnings per share

  • 16 Canadian stocks that have consistently repurchased their shares in the last decade

    • Which collectively trounced the market, even with a few duds mixed in

  • What type of share buybacks work and what types don’t

  • A selection of companies that are poised to be the next generation of Canadian buyback kings

  • And, as a bonus, 20+ U.S. companies that also have a demonstrated history of gobbling up their own shares

One thing I’ve noticed in my share cannibal research is companies that offer consistent share buybacks do often pay dividends as well — but not always. If you’re like me and insist on getting paid a dividend, there will be many choices in here for you. But I’ve also highlighted companies that don’t pay a dividend, choosing instead to give back to their shareholders only through buybacks.

That last part will be of special interest to those of you who hate paying taxes on your dividends. Personally, I never minded paying a little bit of tax on my dividends, but I can certainly understand those who might.

The report is at the end of this email. Enjoy!

Last day!

Starting July 1st, Canadian Dividend Investing is increasing our price from $150 to $200 per year, or from $15 to $20 per month.

That’s tomorrow!

I want to make sure everyone who is interested in the premium edition of the newsletter can lock in the lower price today.

The premium service includes:

  • Two long-form articles each week, including:

    • A Tuesday deep dive on a Canadian dividend-paying stock, often one hanging out below the radar

    • A Friday weekly roundup which analyzes the news of the week, updates on previously covered stocks, a curation of all the dividend increases announced in the Canadian market, and much more

  • Two model portfolios, which track:

    • Canadian high yield stocks with some income growth potential for investors looking to maximize their income (the 5-4-3 portfolio)

    • Canadian dividend growth stocks with a lower yield but higher growth potential (the dividend growth portfolio)

  • Visibility into Nelson’s portfolio, including updates as I buy or sell stocks

  • Dividend safety scores for 100+ Canadian dividend stocks

  • Access to my own personal watchlist

  • Early access to the Canadian Dividend Investing Podcast (coming in August)

  • An ever-expanding investor resources section, which includes special reports (like today’s!), curated collections, one-pagers, and so much more, all in one place

All this for just $150, before July 1st. Lock in the lower price today!

The share cannibals special report

I haven’t forgotten. Here’s your copy of the share cannibals special report. Enjoy!

Canadian Share Cannibals.pdf1.50 MB • PDF File