The $50 Billion Tax-Free "Giveaway" that will Affect Every Single Investor

I have a simple question for you...

If you could buy 5% of a company and have it turn into 10% of the business -- without investing another dime -- would you do it?

It's obviously a rhetorical question. Who wouldn't want their stake in a company to double in size?
Well, it so happens that you can do this. And you don't have to reinvest dividends or paytaxes on any capital gains.
Let me explain...

Certain companieswill periodically "give away" a portion of company ownership, free of charge, to their existing shareholders. They'll even spend billions of their own money to do it.

Coca-Cola has been known to do this. The company is on track to "give away" $2.5 billion worth of ownership by the end of 2012, but recently said it would begin "giving away" $18.9 billion more as early as next year.

Starbucks (Nasdaq: SBUX) also likes to have these "giveaways." In the past 11 years, the company has "given away" $5.1 billion worth of ownership.

But it's not just these two. Every year, companies across the globe are "giving away" billions of dollars worth of company ownership. Investors get it tax-free and often watch the share price rise afterward.
How does this work? Through share buybacks.

When a company buys backshares of its own stock, it makes every share you own worth a larger percentage of the company.

To keep things simple, imagine you own one share of a company that has 10shares outstanding. You would own 10% of the company. Now, let's say the company bought back five of the 10outstanding shares. You would then own one of five outstanding shares, or 20% of the company.

Your ownership has doubled, but you don't have to pay taxes on the increase. And as long as the company's value remains unchanged, each share of stock is twice as valuable.

Companies with strong buyback programs have consistently beaten the S&P over the years, especially recently. This is clear when you look at the PowerShares Buyback Achievers Fund. This fund has tracked the top buyback companies since Dec. 2006.

To become included, a company must have repurchased at least 5% of its outstanding shares in the past year. Top holdings include IBM  , Home Depot and Disney to name a few. As the chart below shows, the buyback fund has handily beaten the S&P.
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