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Just want to mention since many commentors on this seem to miss this, three important points about stock buybacks missed by the back and forth partisan talking

Just want to mention since many commentors on this seem to miss this, three important points about stock buybacks missed by the back and forth partisan talking points on this comment: 1. They only make sense when the stock is undervalued and aren’t purely driven by taxes. If the stock is undervalued, then investors benefit by owning more of the company for less. If the stock is overvalued, then investors don’t benefit. The overall value of the price compared to its long term real value is important. There is a basic problem with this, because company executives probably never want to admit that their stock is overvalued. 2. Companies with strong incomes relative to their price can afford to do buybacks or with strong cash positions are the ones that make sense to do buybacks. Companies like this might be overvalued. When you see companies internet companies with zero income doing buybacks it makes very little sense and only established companies. Companies with strong financial positions relative to their stock price are more likely to be undervalued. 3. Because of the discounted cash value of income model for dividends where the value of a stock is based on future income and cash flow, dividends generally have to be stable and regular to ascribe significant value to a stock, which is why companies that have built up large cash balances but don’t expect to regularly pay dividends opt for buybacks, because they don’t want to create the constant pressure to regularly pay dividends.

nr378 3y ago
1. Stock buybacks are always anti-dilutive regardless of the value of the stock, and so investors always benefit as future earnings are concentrated amongst fewer shares (all other things being equal). It's true that a lower price/value increases the magnitude of this effect, but the effect is always present. 2. Zero income stocks can still do buybacks when they're returning capital raised from shareholders to shareholders (this is essentially just partially reversing a funding round, which again undoes some of the dilution). 3. Companies can be deemed to be significantly valuable without paying any dividends. Companies that have a long history of paying dividends but then suddenly stop tend to be in distress, which is then reflected in their share price.
- daft_pink 3y ago
  These statements might be logically true, but I feel the logic ignores the overall strategic factors involved in buying back stock and that management needs to consider whether the stock is over or under valued, whether earnings are strong enough for this to make logical sense and the supply and demand among investors for dividend stocks and the ultimate value of a single lump sum distributed to investors vs the value of increased future earnings to the investor from the anti-dilutive impact of buying back stock. Discussing only the tax strategy as is happening in this thread is really stepping over some really important strategic operational factors.

nr378 3y ago

1. Stock buybacks are always anti-dilutive regardless of the value of the stock, and so investors always benefit as future earnings are concentrated amongst fewer shares (all other things being equal). It's true that a lower price/value increases the magnitude of this effect, but the effect is always present. 2. Zero income stocks can still do buybacks when they're returning capital raised from shareholders to shareholders (this is essentially just partially reversing a funding round, which again undoes some of the dilution). 3. Companies can be deemed to be significantly valuable without paying any dividends. Companies that have a long history of paying dividends but then suddenly stop tend to be in distress, which is then reflected in their share price.

daft_pink 3y ago
These statements might be logically true, but I feel the logic ignores the overall strategic factors involved in buying back stock and that management needs to consider whether the stock is over or under valued, whether earnings are strong enough for this to make logical sense and the supply and demand among investors for dividend stocks and the ultimate value of a single lump sum distributed to investors vs the value of increased future earnings to the investor from the anti-dilutive impact of buying back stock. Discussing only the tax strategy as is happening in this thread is really stepping over some really important strategic operational factors.