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There are 100 shares in the market I have $100 in cash, and $100 of Assets. My Company is worth $200 If I pay a $1 ps dividend, then the share price should hal
by Ntrails 7y ago
There are 100 shares in the market
I have $100 in cash, and $100 of Assets.
My Company is worth $200
If I pay a $1 ps dividend, then the share price should halve, and the share owners get $1 each.
If I buy back 50 shares, at $2 each, there will be 50 shares left at a value of $2 each. But now my earnings/share goes up as if by magic, and my options are worth more than in the dividend case.
Also capgains vs income tax yada yada
- fountainofage 7y agoThank you! Posted at the same time as my edit! I forgot about the impact of reduced shares as well!
- appleiigs 7y ago> But now my earnings/share goes up as if by magic, and my options are worth more than in the dividend case. That's not correct. The EPS increase is offset by reduction in company value due to less cash. https://business.financialpost.com/opinion/stock-buybacks-are-no-disease-heres-how-they-really-work https://business.financialpost.com/opinion/stock-buybacks-ar...
- Ntrails 7y agoEPS does go up by magic, since it is earnings (not value) divided by shares (which have halved in number). The options bit is a slight fiddle, although empirical evidence supports it.