Why do corporations buy back their own stock? What is the strategy in this?
In: 0
Stock Buy backs are very similar to paying dividends. Its a way to give money directly back to the shareholds. It really only matters for people who hold very large amounts of shares though, which are often insiders and large institional holders (such as investment firms like a Blackrock or Vanguard).
A company “buys back” shares off the market, which increase the share price of the stock. An increase price of the stock, means every share you own is a little more valuable than it was yesterday.
Another way to do this is dividends, and its the opposite — it decrease the price of each share. When a company pays dividends, it directly gives money to shareholders, and the company value decrease by that exact amount (which means the share price goes down).
Dividends -force- your shareholders to take income. Its basically like selling a portion of your shares. There are times you may want to do this or not. A stock buy back does not force your shareholders to have an income event, instead it just makes each share more valuable.
Latest Answers