NCIBI have to say that the NCIB is looking pretty economic right now. YLO buying back 10% of their float or 52m shares at an average of $4 would cost them $208m. Each share has a dividend of
.65 which represents a 16.25% "after-tax" return on YLO's investment given that they pay their dividends out of after-tax dollars. That's pretty solid.
Assuming the dividend is not cut, they are saving $34m annualized by buying back 52m shares in 2011 which can be applied to debt each year thereafter. If they buy back another 10% in 2012 or 47m shares, they'd save another $31m in dividends or $65m cumulative by 2013.
YLO's most economic investment is to repurchase their own shares. I only wish the TSX rules allowed companies to buy back more than 10%. Using $500m from the Trader sale to pay down debt will save them $25m at 5% - probably even less given that they'll pay down their credit facility which is probably at 3%. They'd get far bigger bang by buying back stock at an after-tax return of 16.25%. Then, take the annualized reduction in dividends and apply that to debt going forward. Unfortunately, I'm pretty sure the ratings agencies wouldn't like my plan.