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I disagree with your assessment of dividends vs. share buybacks. My opinion mirrors that of Mark Cuban. A few choice quotes from [1]: Dividends offer _true_
by beambot 15y ago
I disagree with your assessment of dividends vs. share buybacks. My opinion mirrors that of Mark Cuban. A few choice quotes from [1]:
Dividends offer _true_ returns:
They send a message to shareholders that you want them to stay as shareholders and are rewarding them for their committment to your company. Its a reminder to shareholders that the business investments you have made have actually worked and the reward is that cash can be returned to shareholders . That profits are more important to shareholders over the long term than trying to convince wall street to increase your PE [via buybacks].
Meanwhile... buybacks just perpetuate insider dilution:
Companies continuously issue new shares to their managers without asking their existing shareholders. Those managers then leak that stock to the market a little at a time. It’s unlimited dilution of existing shareholders’ stakes, death by a thousand dilutive cuts. If that isn’t a scam, I don’t know what is. Individual shareholders have nothing but the chance to sell it to the next sucker. A mutual fund buys one million shares of a company with your and your coworkers’ money. You own 1 percent of the company. Six weeks later you own less, and all that money went to insiders, not to the company. And no one asked your permission, and you didn’t know you got diluted or by how much till 90 days after the fact if that soon.
[1] http://blogmaverick.com/2006/07/22/executive-pay-and-stock-prices/ http://blogmaverick.com/2006/07/22/executive-pay-and-stock-p...
- karamazov 15y agoThis is an interesting point of view, but the article you linked to misses a fundamental point of the "golden parachute" offered to CEO's: if a leading executive messes up, you want to incentivize them to come forward, not to cover up their mistake for fear of losing their jobs. Is a golden parachute ideal for this? Perhaps not, as it does introduce some strange incentives overall; but I'm not aware of anything better.
- beambot 15y agoI have no idea how golden parachutes relate to a discussion of dividends vs. stock buybacks. Enlighten me?
- karamazov 15y agoParent's article discusses why stock buybacks damage shareholder value, by referencing the ability of executives to generate shares and sell them on the open market, and thereby dilute existing owners without their consent. (Note that I'm summarizing the argument, not agreeing with it.)
- mjwalshe 15y agoYes your right apart from the endge cases of Investment trusts where you can use buy backs and issusing shares to manage the discount/premium.
- nandemo 15y agoThe quote describes stock grants and stock options for managers (and employees). That's orthogonal to the question of dividends vs buybacks. An individual investor might prefer dividends for tax reasons, while a mutual fund might prefer buybacks. But other things being equal, both sorts of investors don't want unnecessary dilution.
- mjwalshe 15y agoDo they not have to pass a motion at the AGM to disallow premetion rights to issue new shares?