The Motley Fool

4 ASX shares undergoing buybacks. Are they a buy?

When buying ASX shares, a key consideration is the price, as paying too high a price can lead to poor investor returns and capital erosion.

The price paid per share is an important consideration not only for individual investors, but also for companies implementing share buy-back programs. Like an investor, if a company pays a price that is above fair value for its own shares, it will reduce its overall wealth.

In order to prevent loss of wealth, companies should only implement share buy-back schemes if their shares are available for a fair price. If this is not the case, dividends might be a more appropriate means of returning excess capital or profits to shareholders.

With this in mind, here is a list of 4 ASX companies currently undergoing a share buy-back program. If my logic holds, these companies should each have a management team that views its shares as at least fairly priced.

ASX companies undergoing share buy-back

  • Aurizon Holdings Ltd (ASX: AZJ) – trading at $5.90 per share.
  • BlueScope Steel Limited (ASX: BSL) – trading at $12.47 per share.
  • Computershare Limited (ASX: CPU) – trading at $15.90 per share.
  • Scentre Group (ASX: SCG) – trading at $3.92 per share.

The management teams of these 4 companies may believe that now is a good time to buy. Unfortunately, this type of assessment does not guarantee strong investor returns into the future.

For me, the fact that these companies are buying back shares instead of funding growth is a cause for concern. Additionally, I like to invest in companies with low debt and a track record of high return on equity. These two factors are enough to make me weary of an investment in Aurizon, Computershare and Scentre.

Bluescope Steel’s recent financial performance does make it a more appealing investment alternative. However, its future performance will likely be tied heavily to the price of the commodity it sells, making investor returns hard to predict. Without a better understanding of the steel market I won’t be investing in Bluescope either.

Foolish takeaway

Unfortunately, despite what may be cheap prices I won’t be investing in any of the 4 companies listed. However, I still believe the concept of share buy-backs is important to understand and that it can be useful in assessing value.

Instead, why not take a closer look at these top dividend shares.

Top 3 Dividend Shares To Buy For 2020

When Edward Vesely -- our resident dividend expert -- has a stock tip, it can pay to listen. With huge winners like Dicker Data (up 147%) and Collins Food (up 105%) under his belt, Edward is building an enviable following amongst investors that are planning for retirement.

In a brand new report, Edward has just revealed what he believes are the 3 best dividend stocks for income-hungry investors to buy now. All 3 stocks are paying growing fully franked dividends giving you the opportunity to combine capital appreciation with attractive dividend yields.

Best of all, Edward’s “Top 3 Dividend Shares To Buy For 2020” report is totally free to all Motley Fool readers.

Click here now to access this free report.

Motley Fool contributor Mitchell Perry has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Computershare and Scentre Group. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

FREE REPORT: Five Cheap and Good Stocks to Buy now…

Our Motley Fool experts have FREE report, detailing 5 dirt cheap shares that you can buy today.

One stock is an Australian internet darling with a rock solid reputation and an exciting new business line that promises years (or even decades) of growth… while trading at an ultra-low price…

Another is a diversified conglomerate trading near a 52-week low all while offering a 2.7% fully franked yield…

Plus 3 more cheap bets that could position you to profit over the next 12 months!

See for yourself now. Simply click the link below to scoop up your FREE copy and discover all 5 shares. But you will want to hurry – this free report is available for a brief time only.

CLICK HERE FOR YOUR FREE REPORT!