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What does it mean to "increase dividend" and "do stock repurchases" (finance noob here)?
by bmer 8y ago
What does it mean to "increase dividend" and "do stock repurchases" (finance noob here)?
- AlexandrB 8y agoBoth are ways of giving money to shareholders, either as cash (dividends) or increased stock price (repurchases). What's notable is that Activision/Blizzard is not investing those profits in future games, R&D, etc. Kind of like saying "we have more money than we know what to do with".
- Jare 8y agoI don't know how much money they have but it is clear they don't know what to do with it. Their 2019 outlook is rather bleak with barely a literal handful of releases.
- granshaw 8y agoIt’s not that simple. EPS (earnings per share) is a key metric tracked by investors, and buybacks are a guaranteed way to increase that, vs the riskiness of r&d spending
- maximente 8y agoincrease dividend: pay more to shareholders (as opposed to anything else the business could do e.g. CapEx or raises for labor) do stock repurchases: basically a way to launder money by evading taxes. the long and short is that instead of paying shareholders $100 via dividends, which are taxable dividend income, the co spends $100 to buy the shares (say 50 shares at $2 each). if the shares were purchased for $1 each, then the basis increases by $1, so the it only creates $50 taxable income. edit: mistake
- dinedal 8y agoI don't fully understand the specifics, I thought that dividend tax was generally 15% in the lower tax bracket, and wouldn't the $50 of non-dividend income be taxable at short term capital gains, or 40%? That means that the $100 of dividend income would be $15 in taxes vs $20 of taxes for the $50 in short term capital gains. What am I missing?
- maximente 8y agoi'm assuming long term rate here: 15% income > $38K, 20% > $425K, which is the same as dividends; obviously, short term is way higher as you've noted. so they'd pay half the taxes in this case - you can plug in different numbers to see a different effect, e.g. $50 purchase => $60 buyback across $1mil dollars. i probably should have done this for clarity's sake.
- dinedal 8y agoThanks for the followup!
- FakeComments 8y agoA dividend is money you pay to your owners as profit: if a business makes more than it’s expenses, that profit is either reinvested, held onto, or given back to shareholders as a dividend. Repurchasing stock is more or less accomplishing the same thing, but by purchasing shares back from the market instead of just giving the money to shareholders. This makes their shares more valuable — but has different tax implications. Both are ways to return profits to shareholders, and are activities usually done by mature businesses and not growing ones. (The reason a business returns money is it doesn’t know how to successfully reinvest the money.)
- mschuster91 8y ago> The reason a business returns money is it doesn’t know how to successfully reinvest the money Most companies that do not return money through dividends or stock buy backs are eventually pressured to do so by activist investors / hedge funds, even Apple. The only company which has managed to resist this is Amazon which is famous for cross-financing to enter a market and then totally dominate it with the funds from profitable parts of the company (e.g. AWS). It only works because Amazon stockholders in general know that this is the secret sauce behind Amazon's entire business model.
- sgt101 8y agoIt means -> export capital (cash) from your business to your shareholders. Which reduces their exposure to your management and reduces your scope (as a manager) to create value.
- WorldMaker 8y agoDividends are profits paid to shareholders (rather, than saved for a rainy day or spent on future operations). Stock repurchases are a company buying stock back from shareholders, sometimes at higher than market value. Often these are seen as paying off investors similarly to non-reoccurring dividends. Sometimes companies do it move ownership back towards employees (by moving it back into benefit pools), but it's often as not these days that it just goes into executive salaries or board golden parachutes.