180 Interesting Cannibal Stocks
Part 3 of the Compounding Dividends Watchlist
Hi Partner 👋
Welcome to this week’s 🔒 exclusive edition 🔒 of Compounding Dividends. Each week we talk about the financial markets and give an update on our Portfolio.
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We’ve already shared our Dividend Growth Stocks and our High-Yield Stocks with you:
Today part 3 of our watchlist rolls out.
It’s all about Cannibal Stocks.
Our Dividend Portfolio
We're focusing on Cannibal Companies today, but we’re always looking for good businesses with:
Sustainable competitive advantages
Quality management
Healthy balance sheets
Attractive growth
“Pay close attention to the cannibals – the businesses that are eating themselves by buying back their stock.” - Charlie Munger
Creation of the watchlist
Our watchlist is split into three parts:
Dividend Growth Stocks: Stable companies raising their dividends every year
High-Yield Stocks: Companies that return a lot of capital as dividends
Cannibal Stocks: Companies that heavily buy back their own shares
The goal is to provide you with a reliable income stream.
Cannibal Companies
Today’s article will focus on Cannibal Companies.
These companies return capital to shareholders by buying back their own shares.
Buybacks increase your ownership of the company
An easy way to understand this is to think about sharing a pizza.
The more people there are, the smaller each slice is.
Buybacks reduce the number of slices, making your slice bigger.
How many shares you have doesn’t change, but how much of the company you own does.
If you own a business that earns $10 per share and the company buys back 50% of its outstanding shares, EPS will increase from $10 to $20.
The chart below shows how different levels of buybacks affect returns:
In addition to generating attractive returns, buybacks address one of the common criticisms of dividends - taxes.
The image shows the cumulative returns of different factors, net of taxes.
Beyond Buybacks
Buybacks aren’t the only way for companies to return capital to shareholders.
Management teams can return capital to shareholders through:
Dividends
Share buybacks
Debt paydown
These three added together are called “shareholder yield”.
Shareholder yield performs even better than dividends alone!
One of the reasons we love Finchat?
It calculates Shareholder Yield for you!
Here’s the shareholder yield of the company Big Lots. It’s over 40% (!):
A Cannibal Example
🏠 NVR
NVR is a homebuilder in the United States.
Between 1993 and 2024, NVR bought back more than 80% of its shares.
Shares outstanding 1993: 17.9 million
Shares outstanding 2024: 3.2 million
88.7% of shares bought back
Zero dividends, no stock splits
Stock price went from $5.50 to $9,000
1,600 bagger!
Earnings went up about 150x
A Few Highlights
The company with the highest shareholder yield on the list:
🖥️ Fidelity National Information Services at 25.3%
A few companies with consistently high shareholder yield:
🏷️ eBay: More than 5% per year for 7 years
🚗 AutoZone: More than 3% for 9 out of the last 10 years
The Cannibal Universe
Are you ready to look at more than 180 companies returning capital to shareholders?
Let’s dive into the list!