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Samsung On The Upswing, Outs $9.9B Share Buyback

October 30, 2015 - Written By Daniel Fuller

Samsung has been having a very interesting year. Despite record sales with the crazy success enjoyed by the Samsung Galaxy S6, Samsung Galaxy Note 5 and their cousins, Samsung has failed to post a net profit growth, or an “up” quarter, in years. That changed yesterday. Samsung announced their first profit growth in over two years and along with it, a share buyback of gargantuan proportions set to take place in three to four phases leading into a longer-term three-year plan.

Coming off what seemed to be a long spell of dwindling profits due to overspending, Samsung’s new windfall has spurred the new buyback initiative. Over the next year, Samsung plans to roll out the buyback capital to shareholders and increase dividends on their stocks, leading to a hungrier, more tempting market and thus spurring growth. This move is also planned to increase the overall value figures of the company and allow some wiggle room with any remaining capital.

Samsung plans to announce the current year’s ending dividend at the beginning of next year. This new focus on more effective allocation of capital, most likely due to the benefits of recent R&D expenditures totaling $20 billion, seems set to make Samsung a more investor-friendly company.

Samsung’s plans for the next year include buying back a certain percentage of their common shares and preferred shares, then promptly cancelling these shares. This will, in essence, make the smaller remaining pool of stock worth more per share, giving investors more money in their pockets, the company’s image more value and more freedom with remaining capital to the company. It sounds almost like Samsung is giving away money here, but this is a win for everybody involved. With fewer shares in fewer places, Samsung has more control over their own capital and operations, giving them the freedom to be more strategic with future spending.

The second part of the new initiative, stretching over three years, will focus on further increasing dividends to attract new share buyers and keep current shareholders loyal. The increased payouts assume continued growth, but current market conditions are a bit on the shaky side. Some love Samsung and some hate them, but they are on the rise in a big way while many competitors are falling by the wayside, leaving smaller fare such as Xiaomi and OnePlus to compete in their wake. If Samsung can continue this rate of growth in the face of the new market that’s slowly overtaking the current one, then their ambitious plan will be worth much more than any amount of fame or capital that caution with finances could have yielded.