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Dollar Tree Boosts Shareholder Value
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ShareDollar Tree Inc. (DLTR - Snapshot Report), one of the leading operators of discount variety stores, announced a share buyback for an additional $500 million of its common stock in an effort to boost shareholder value.
The current buyback is an add-on to the previously-announced share repurchase plan announced on October 7, 2007 for $500 million of which Dollar Tree still has $42 million remaining to expend. Therefore, the current authorization expands the funds available for share repurchases to $542 million.
At a price of $63.05, the current authorization represents approximately 8.6 million shares. As of May 1, 2010, Dollar Tree had 84.8 million of common shares outstanding. The current share repurchase authorization will inflate the figure to 93.4 million of common shares outstanding.
The company, which has a market capitalization of $5.35 billion, has utilized $1.4 billion to repurchase shares since 2003, $218 million of which was spent in the first quarter of 2010.
Dollar Tree’s continuous effort to increase shareholder wealth through consistent share repurchase announcements reflects the company’s ability to generate strong cash. As of May 1, 2010, the company had cash and cash equivalents of $338.6 million, which represents a healthy cash position and the ability to provide good value to its shareholders.
Dollar Tree commands an industry leading return on equity (ROE); its trailing twelve months’ return on equity of 25.15% surpasses the industry return on equity of 13.53%.
Companies can use excess cash for strategic acquisitions and share repurchase activity. Share repurchases, however, represent an effective means to increase the value of shareholders. Thus, the best investment tool for a company is in its own shares.
Our Take
Share buyback programs are returning this year after they were held back last year when companies hoarded cash in the wake of the financial crisis. We believe this share repurchase announcement depicts that the company is in good shape and is well positioned for future growth.
Read the full analyst report on DLTR
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