Is ANZ undervalued?

The company thinks so — it’s buying back $425 million in shares.

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ANZ (ASX: ANZ) announced (link saves as PDF) today that that the bank will buy back $425 million worth of shares before 13 June. Share buybacks are a way for a company to increase the value of each of its investors’ shares, and can also potentially serve as a market signal that the company thinks its shares are undervalued.

In this case, the buyback won’t directly add extra bucks to investors’ portfolio, but will instead serve as a means to offset share issuances resulting from the corporation’s Dividend Reinvestment Plan and Bonus Option plan. ANZ had previously announced a 2013 interim dividend of $0.73 per share, payable on 1 July to any investor with shares purchased on or before 15 May.

“ANZ is committed to achieving ongoing capital efficiencies in its business,” said CFO Shayne Elliott in a statement today. “We are comfortable with our current capital position and the board has decided on this occasion to neutralise the dilutive impact of the DRP and BOP through an on-market share purchase.”

ANZ isn’t alone in distributing dividends to return value to shareholders. The Australian Financial Review says “good quality Australian shares that have a long history of paying dividends are a real alternative to a term deposit.” Get “3 Stocks for the Great Dividend Boom” in our special FREE report. Click here now to find out the names, stock symbols, and full research for our three favourite income ideas, all completely free!

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Motley Fool contributor Justin Loiseau has no position in any stocks mentioned in this article. You can follow him on Twitter @TMFJLo.

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