GPS device maker Garmin (NASDAQ: GRMN) just authorized an extension of its share repurchase program through Dec. 31, 2017. About $80.4 million in potential buybacks remains under its current $300 million program. Garmin also adopted a Rule 10b5-1 plan, which lets it repurchase shares during otherwise unavailable times via a broker, which buys shares on the company’s behalf.
Do these buybacks matter?
Over the past 12 months, Garmin has spent $75.4 million, or 13% of its free cash flow, on share buybacks. Those repurchases were fairly well-timed, since the stock rallied nearly 40% during that period.
The extension indicates that Garmin plans to spend a comparable amount of its FCF on buybacks next year. Those will also help offset its stock-based compensation expenses, which rose 49% annually to $29.2 million (4% of its revenues) last quarter.
However, Garmin generally favors dividends over buybacks — it spent $386.2 million, or 67% of its FCF, on dividend payments over the past year. It currently pays a forward yield of 4.1%, which is supported by its payout ratio of 76%, and has raised its dividend annually for four straight years.
Where will Garmin head in 2017?
Garmin has been pivoting its business away from basic GPS devices toward fitness-focused wearables over the past year. Garmin currently ranks third in the overall wearables market after Fitbit and Xiaomi, according to IDC, and it’s posting faster year-over-year growth than both rivals.
That growth, which was fueled strong demand for its specialized wearable devices for certain activities — like swimming, golfing, and jogging — is offsetting ongoing losses at its shrinking automotive GPS business. Analysts expect that turnaround to continue this year with 5% sales growth and 8% earnings growth.
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Leo Sun has no position in any stocks mentioned.
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