Dear Nancy,
There was an announcement that Suncor will purchase its own common shares, up to $500-million worth. Why would a company do this? And from a stockholder's perspective, is this good or bad news?
Thanking you in advance for the free advice.
Perry
Dear Perry,
Suncor did announce that they are going to buy back their shares under a normal course issuer bid. This means that they will use their money to reduce the number of shares outstanding. When this happens it reduces the supply of shares. That could ultimately mean that there is more value to the shares that are still remaining.
This is because of the basic law of supply and demand. If there is less supply and demand stays the same or increases, the value goes up. When there is more supply, value goes down unless demand goes up as well.
From a shareholder's prospective, it indicates that the company has sufficient funds to buy back their shares without squeezing their cash reserve. That implies a solid financial position for the company. A company would do this to reduce the number of shares outstanding and inherently increase its value.
Nancy
Nancy Woods, CIM, FCSI, is an associate portfolio manager and investment advisor with RBC Dominion Securities Inc. To ask her a question, send an e-mail to asknancy@rbc.com or visit her web site at nancywoods.com
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