What is a 'Boon'

Boon is a brief positive development for investors, marking an uptick in dividends, a stock market rally, mergers, buybacks and other circumstances that can lead to short periods of increased investment returns.

BREAKING DOWN 'Boon'

Boon refers to a positive development for investors. First appearing in Middle English, boon is defined as a timely benefit, or a fulfillment of a request for favor. Often used in by the press to indicate fortuitous circumstances such as such as increased dividends, stock market rallies or stock buybacks, the term can be used to describe any event or period in which investors experience positive returns.

There can be any number of reasons for the press or an investor to identify a circumstance as a boon, and it is possible that one investor’s boon may appear as a bane to another. News of a possible merger between companies often bring speculation about boons, for instance. In many circumstances a boon is short-lived, meaning that an investor frequently has a small window in which to reap the benefit.

Boons and Mergers

A boon occurred in the summer of 2015 as stock prices for both T-Mobile and the Dish Network Corporation increased after the companies announced a possible merger. As a side effect of this announcement, prices of cell tower stocks also increased, prompting much speculation on the growth that would follow in the wake of the merger’s completion. In July 2015, when the Federal Communications Commission indicated that it would not approve the merger, stock prices dropped and the boon ended.

Boons and Buybacks

Some companies decide to reinvest in themselves by buying back outstanding shares of stock. This is a frequently a strategic move in order to prevent a hostile takeover by shareholders looking to gain a controlling interest in the company.

In some cases, companies will simply purchase their stock on the open market. Another common tactic is to incentivize a stock buyback by offering a premium in addition to the current market price of their stock, in order to encourage stockholders to sell interest in the company. This premium functions as a boon to the investor, although a boon can also be realized by shareholders who keep their stock during a buyback, as reducing the number of shares increases the value of each share remaining in an investor’s portfolio.

As with mergers, buyback boons can also end quickly. In the final quarter of 2015, LPL Financial Holdings began a $250 million stock buyback. LPL offered a premium to a large company that held some of its stock. On September 23, 2015, the initial price per share was $40.20. LPL paid an average of $43.50 per share to buy back 5.6 million shares. At the end of the quarter, LPL reported losses which led to its stock collapsing to $16.50 per share, a definitive end to the initial boon.

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