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>>Since 2013, Boeing has paid $17bn (£13.74bn) in dividends to shareholders and has spent a further $43bn buying its own shares - a spending spree that has help

>>Since 2013, Boeing has paid $17bn (£13.74bn) in dividends to shareholders and has spent a further $43bn buying its own shares - a spending spree that has helped Boeing treble its share price in just five years. Are share buy backs a common strategy for large companies?

fcantournet 7y ago
For the last ~10 years yes. Almost all big companies that are profitable do it. This is actually a major problem for innovation and investments in general, there are lots of economist who talk about this issue: Mariana Mazzucato has some very convincing arguments for public investments based, among other things, on this very problem. (neo-liberal) Governments lower corporate taxes to boost corporate profit in the (unfunded) hope that this will drive massive investments in innovation and create job, and bigCo just buy their stock back because it is by far the most profitable short-term for their shareholders and their executives. Major reason is : they don't know what else to do. There was a very cool article on HN about the specific Boeing case that went over how it changed in the last 20y to go from engineering company to finance-driven company
- chii 7y ago
  > Major reason is : they don't know what else to do no, they just don't like the risk of innovation. A share buy-back program is guarenteed to increase the share price, which is benefitial to executives who hold their bonuses in shares (and share holders would also like it). Doing innovation comes with risks - which may or may not pan out. If it doesn't pan out, the executives would get chewed for it, and if it does pan out it is unlikely to pay off for a long time (in terms of bonuses - at least, not within their tenure). Gov'ts should just invest in startups, rather than give tax breaks. Invest in up and coming students who show promise, and get to claim a share of their innovation as taxes as well! And if it fails, it fails - the gov't doesn't need to be profitable.
  - throw0101a 7y ago
    Yes, it is prudent to invest capital back into the company (R&D), but it may not be the best use of money or have the best ROI. It should also be noted that share buy-backs are also useful to shareholders as an alternative to dividends. Whereas a dividend creates a tax event that an investor may nor may not welcome, the same investor can choose to sell their stock or hang on to it. Financially speaking, if you start with $1000 in stocks, it does not matter whether you end up with $1000 in stock and $100 in cash from dividends, or $1100 in stocks (from the price going up). * https://www.youtube.com/watch?v=UpXI_Vd51dA https://www.youtube.com/watch?v=UpXI_Vd51dA And yet companies that payout dividends are not vilified the same was as buy-back companies--in fact dividend payers are lauded in an almost fetishist way due to human psychology: * https://en.wikipedia.org/wiki/Mental_accounting https://en.wikipedia.org/wiki/Mental_accounting
    - chii 7y ago
      the issue here is that gov't lower corp taxes in the hopes that the money gets put into R&D. Instead, it goes into share buyback schemes. Instead, gov't should use the taxes (rather than returning it to corps) and pay startups for innovation, rather than hope companies use it on R&D.
      - throw0101a 7y ago
        > the issue here is that gov't lower corp taxes in the hopes that ... This is what the GOP said was the reason for the tax cut. This is what the GOP has been saying since 1980 is the reason for the tax cuts. Given this has never worked for several decades, do you think the (non-naive) members of the GOP actually believe this is the reason for the tax cuts? Or is it simply to give their plutocrat supporters what they want?
    - hylaride 7y ago
      Financially speaking, if you start with $1000 in stocks, it does not matter whether you end up with $1000 in stock and $100 in cash from dividends, or $1100 in stocks (from the price going up). It can if capital gains are taxed lower than dividends, which is the case in much of the world. *edit copy/pasted the quote wrong
- Mvandenbergh 7y ago
  Mazzucato is brilliant and well worth reading but I'm clear why share buy-backs are any different than dividends from the point of view of balancing shareholder rewards vs reinvestment. The difference is in taxability but that is a separate question.
wesammikhail 7y ago
It can really be seen as another form of dividend (or payout) depending on how you look at it. And yes it is fairly common when capital is available especially when no major re-investment opportunities present themselves that would utilize the capital in more efficient ways than mere buybacks. Edit: a bit off topic but this "discussion" between Theil and Schmidt in my opinion highlights why companies are buying back their stock https://www.youtube.com/watch?v=PsXFwy6gG_4 https://www.youtube.com/watch?v=PsXFwy6gG_4
lmkg 7y ago
Apple announced a stock buyback last year: https://www.nytimes.com/2018/05/01/technology/apple-stock-buyback-earnings.html https://www.nytimes.com/2018/05/01/technology/apple-stock-bu... Microsoft announcing in 2016 an increase to their existing buyback plans: https://www.bloomberg.com/news/articles/2016-09-20/microsoft-plans-to-repurchase-up-to-another-40-billion-in-stock https://www.bloomberg.com/news/articles/2016-09-20/microsoft... Google stock buyback from 2016: https://www.businessinsider.com/google-stock-buy-back-8589869056-perfect-number-2018-2 https://www.businessinsider.com/google-stock-buy-back-858986... Facebook stock buyback from 2016: https://www.businessinsider.com/facebook-is-doing-a-6-billion-stock-buyback-2016-11 https://www.businessinsider.com/facebook-is-doing-a-6-billio... So, yes, definitely a thing. I'm not a finance person, but there are reasons why a stock buyback would make sense. Returning money to investors is one. Another is that the more of its own stock the company owns, the easier it is to give stock (or options or whatever) as bonuses to employees.
- PhilippGille 7y ago
  Alphabet announced $25 billion buyback just last week: https://www.bloomberg.com/news/articles/2019-07-25/alphabet-sales-top-analysts-estimates-calming-growth-concerns https://www.bloomberg.com/news/articles/2019-07-25/alphabet-...
barry-cotter 7y ago
> Are share buy backs a common strategy for large companies? Yes. They’re a transfer of money from the company to its owners but they have tax advantages over dividends because instead of all owners paying tax twice, once on profits and again as income they’re only taxed as corporate profits unless you’ve actually sold your shares. The owners who don’t sell have a larger share of the remaining company by virtue of the smaller number of shares outstanding.
pjc50 7y ago
Share buybacks are a more "tax efficient" way of returning money to shareholders than dividends, that's all.
thaumasiotes 7y ago
> a spending spree that has helped Boeing treble its share price in just five years This seems like a totally irrelevant metric. Wouldn't the relevant one be market capitalization? That's up about 2.5x over the last five years... all of which seems to be due to something that happened in the fall of 2016 (and continued through early 2018).
throw0101a 7y ago
> Are share buy backs a common strategy for large companies? Dividends used to be the be-all and end-all of giving back capital to investors. However, the 'problem' with dividends is that by receiving cash, it creates a taxable event that not all investors are happy with. With share buy backs, an investor could choose to either sell their share (at the presumably higher value) or hang onto them (again, assuming the price goes up). Financially/mathematically speaking, whether a company does share buy backs or dividends does not matter: * https://www.youtube.com/watch?v=UpXI_Vd51dA https://www.youtube.com/watch?v=UpXI_Vd51dA Yet for some reason there is an idea the dividend-paying companies are better than those who do not, and that share buy backs are bad/evil in some way.

fcantournet 7y ago

For the last ~10 years yes. Almost all big companies that are profitable do it. This is actually a major problem for innovation and investments in general, there are lots of economist who talk about this issue: Mariana Mazzucato has some very convincing arguments for public investments based, among other things, on this very problem. (neo-liberal) Governments lower corporate taxes to boost corporate profit in the (unfunded) hope that this will drive massive investments in innovation and create job, and bigCo just buy their stock back because it is by far the most profitable short-term for their shareholders and their executives. Major reason is : they don't know what else to do. There was a very cool article on HN about the specific Boeing case that went over how it changed in the last 20y to go from engineering company to finance-driven company

chii 7y ago
> Major reason is : they don't know what else to do no, they just don't like the risk of innovation. A share buy-back program is guarenteed to increase the share price, which is benefitial to executives who hold their bonuses in shares (and share holders would also like it). Doing innovation comes with risks - which may or may not pan out. If it doesn't pan out, the executives would get chewed for it, and if it does pan out it is unlikely to pay off for a long time (in terms of bonuses - at least, not within their tenure). Gov'ts should just invest in startups, rather than give tax breaks. Invest in up and coming students who show promise, and get to claim a share of their innovation as taxes as well! And if it fails, it fails - the gov't doesn't need to be profitable.
- throw0101a 7y ago
  Yes, it is prudent to invest capital back into the company (R&D), but it may not be the best use of money or have the best ROI. It should also be noted that share buy-backs are also useful to shareholders as an alternative to dividends. Whereas a dividend creates a tax event that an investor may nor may not welcome, the same investor can choose to sell their stock or hang on to it. Financially speaking, if you start with $1000 in stocks, it does not matter whether you end up with $1000 in stock and $100 in cash from dividends, or $1100 in stocks (from the price going up). * https://www.youtube.com/watch?v=UpXI_Vd51dA https://www.youtube.com/watch?v=UpXI_Vd51dA And yet companies that payout dividends are not vilified the same was as buy-back companies--in fact dividend payers are lauded in an almost fetishist way due to human psychology: * https://en.wikipedia.org/wiki/Mental_accounting https://en.wikipedia.org/wiki/Mental_accounting
  - chii 7y ago
    the issue here is that gov't lower corp taxes in the hopes that the money gets put into R&D. Instead, it goes into share buyback schemes. Instead, gov't should use the taxes (rather than returning it to corps) and pay startups for innovation, rather than hope companies use it on R&D.
    - throw0101a 7y ago
      > the issue here is that gov't lower corp taxes in the hopes that ... This is what the GOP said was the reason for the tax cut. This is what the GOP has been saying since 1980 is the reason for the tax cuts. Given this has never worked for several decades, do you think the (non-naive) members of the GOP actually believe this is the reason for the tax cuts? Or is it simply to give their plutocrat supporters what they want?
  - hylaride 7y ago
    Financially speaking, if you start with $1000 in stocks, it does not matter whether you end up with $1000 in stock and $100 in cash from dividends, or $1100 in stocks (from the price going up). It can if capital gains are taxed lower than dividends, which is the case in much of the world. *edit copy/pasted the quote wrong
Mvandenbergh 7y ago
Mazzucato is brilliant and well worth reading but I'm clear why share buy-backs are any different than dividends from the point of view of balancing shareholder rewards vs reinvestment. The difference is in taxability but that is a separate question.

wesammikhail 7y ago

It can really be seen as another form of dividend (or payout) depending on how you look at it. And yes it is fairly common when capital is available especially when no major re-investment opportunities present themselves that would utilize the capital in more efficient ways than mere buybacks. Edit: a bit off topic but this "discussion" between Theil and Schmidt in my opinion highlights why companies are buying back their stock https://www.youtube.com/watch?v=PsXFwy6gG_4 https://www.youtube.com/watch?v=PsXFwy6gG_4

lmkg 7y ago

Apple announced a stock buyback last year: https://www.nytimes.com/2018/05/01/technology/apple-stock-buyback-earnings.html https://www.nytimes.com/2018/05/01/technology/apple-stock-bu... Microsoft announcing in 2016 an increase to their existing buyback plans: https://www.bloomberg.com/news/articles/2016-09-20/microsoft-plans-to-repurchase-up-to-another-40-billion-in-stock https://www.bloomberg.com/news/articles/2016-09-20/microsoft... Google stock buyback from 2016: https://www.businessinsider.com/google-stock-buy-back-8589869056-perfect-number-2018-2 https://www.businessinsider.com/google-stock-buy-back-858986... Facebook stock buyback from 2016: https://www.businessinsider.com/facebook-is-doing-a-6-billion-stock-buyback-2016-11 https://www.businessinsider.com/facebook-is-doing-a-6-billio... So, yes, definitely a thing. I'm not a finance person, but there are reasons why a stock buyback would make sense. Returning money to investors is one. Another is that the more of its own stock the company owns, the easier it is to give stock (or options or whatever) as bonuses to employees.

PhilippGille 7y ago
Alphabet announced $25 billion buyback just last week: https://www.bloomberg.com/news/articles/2019-07-25/alphabet-sales-top-analysts-estimates-calming-growth-concerns https://www.bloomberg.com/news/articles/2019-07-25/alphabet-...

barry-cotter 7y ago

> Are share buy backs a common strategy for large companies? Yes. They’re a transfer of money from the company to its owners but they have tax advantages over dividends because instead of all owners paying tax twice, once on profits and again as income they’re only taxed as corporate profits unless you’ve actually sold your shares. The owners who don’t sell have a larger share of the remaining company by virtue of the smaller number of shares outstanding.

pjc50 7y ago

Share buybacks are a more "tax efficient" way of returning money to shareholders than dividends, that's all.

thaumasiotes 7y ago

> a spending spree that has helped Boeing treble its share price in just five years This seems like a totally irrelevant metric. Wouldn't the relevant one be market capitalization? That's up about 2.5x over the last five years... all of which seems to be due to something that happened in the fall of 2016 (and continued through early 2018).

throw0101a 7y ago

> Are share buy backs a common strategy for large companies? Dividends used to be the be-all and end-all of giving back capital to investors. However, the 'problem' with dividends is that by receiving cash, it creates a taxable event that not all investors are happy with. With share buy backs, an investor could choose to either sell their share (at the presumably higher value) or hang onto them (again, assuming the price goes up). Financially/mathematically speaking, whether a company does share buy backs or dividends does not matter: * https://www.youtube.com/watch?v=UpXI_Vd51dA https://www.youtube.com/watch?v=UpXI_Vd51dA Yet for some reason there is an idea the dividend-paying companies are better than those who do not, and that share buy backs are bad/evil in some way.