zlacker

[parent] [thread] 4 comments
1. majorm+(OP)[view] [source] 2020-03-17 02:05:26
I don't understand who buybacks are better for. A dividend would've returned money to all the people who held onto shares and wasn't paying attention to how much they should be selling off to capture the buyback and just had all the gains wiped out...
replies(2): >>opport+B1 >>toast0+0i
2. opport+B1[view] [source] 2020-03-17 02:19:27
>>majorm+(OP)
Absent a market selloff, they're better for shareholders for two reasons: one, it manifests earnings as capital gains/stock appreciation rather than dividends, and two, it has positive future ROI.

Point 1 is not super important because of the existence of qualified dividends.

Point 2 is like this: let's say I'm a company with 1000 outstanding shares valued at $100 each and want to pay a yearly dividend (for simplicity) of $5/share. All market movements notwithstanding and absent any changes, that means I'm basically giving investors a 5% yearly ROI. But, let's say I instead bought back my shares with all my earnings. The first year, I buy back 5% of the outstanding shares. Now there are 950 outstanding shares and total earnings are still $5000/year. Next year each remaining shareholder gets an extra 5% of earnings per share (this compounds). And rather than pay tax each year on dividends, shareholders defer all their taxes until they exit their position.

One argument is that dividends aren't really worse in this case because investors could still choose to spend the cash on purchasing more shares, accomplishing the same thing. But the deferred taxes change the math.

3. toast0+0i[view] [source] 2020-03-17 05:02:32
>>majorm+(OP)
In the absence of taxes, a buyback is equivilent to a dividend with automatic reinvestment.

It's better as a shareholder in many cases to be able to control when you recognize the gain from the return to investors.

replies(1): >>mrscot+KV1
◧◩
4. mrscot+KV1[view] [source] [discussion] 2020-03-17 18:15:09
>>toast0+0i
Hilarious but probably time to leave this site...I got down voted into oblivion for pointing out the US economy would probably collapse due to repo operations 44 days ago...

Too bad, I guess anyone thinking outside the box and pointing out that our herd is going off a cliff is problematic...

replies(1): >>toast0+Kf2
◧◩◪
5. toast0+Kf2[view] [source] [discussion] 2020-03-17 19:43:22
>>mrscot+KV1
The economy may be very well on its way to collapse, but I don't think it's because of the repo operations.
[go to top]