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I think the idea is that stock buybacks can be the same as dividends for an investor who want cashflow from their shares if the investor sells a probationally e
by somethoughts 7y ago
I think the idea is that stock buybacks can be the same as dividends for an investor who want cashflow from their shares if the investor sells a probationally equivalent amount of shares that were bought back by the company during the stock buyback period.
The challenge is that most investors don't bother to do such tracking. And thus most investors are buying stock at prices much higher than they would have originally bought it at.
- dmurray 7y agoThey can be the same for that investor, and better (for tax purposes) for an investor who doesn't want that cash flow and would prefer to reinvest. The enormous majority of US publicly-traded stock is held by institutions who have the resources to monitor the buybacks and sell off stock, if that's what they wanted. Buybacks aren't a scheme where companies or hedge funds make money off careless retail investors.
- smabie 7y agoIt doesn't matter that they are buying at a higher price, theoretically stock buybacks should have no affect on the market value of the company. All it does is increase shareholder equity and buy the same amount decrease the number of floating shares. The problem is that retail money only looks at the price of the stock without any context for the company as a whole.
- somethoughts 7y agoThere is a very real issue if the company pays too high a price for its share buybacks. Taken in the extreme case of the corona virus there is a very real difference if the company (say the airlines) did a buyback of a set amount of shares in January 2020 versus if the company did a buyback of the exact amount of shares buyback today, post corona virus crash.