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> Common sense: if issuing stock were neutral to shareholders, then buybacks would also be neutral to shareholders. (Splits are neutral to shareholders.) Buyba
by pedrocr 12y ago
> Common sense: if issuing stock were neutral to shareholders, then buybacks would also be neutral to shareholders. (Splits are neutral to shareholders.)
Buybacks (and dividends) are indeed neutral to shareholders. You have a company that's worth Y and you buyback X$ using company cash, the shareholders now have in their hands a company that's worth Y-X and X$ in cash, for a total of Y.
- tacos 12y agoNo! OP is talking about shareholder dilution, not balance sheet shareholders' equity. Also, dividends reduce shareholder equity so even by your perverse definition they're certainly not "neutral."
- pedrocr 12y agoDividends reduce shareholder equity and give shareholders the same amount of cash so they are indeed neutral if you ignore taxes. The same is true for the market value of a company. If a company has a market cap of Y and pays out X in cash the market cap will tend to reduce by roughly X in any normally functioning market.