How are stock buybacks any worse than dividend payouts to investors?
I get how they are logistically different, but to me, whether you give the investors cash that they use to buy more stock, or you internally increase the value of a stock by buying it back with company funds, the result is the same – Investors get richer at the cost of investment.
Not saying buybacks aren’t bad, but I guess I just don’t understand the hate relative to dividend payments.
In: 98
Stock buybacks aren’t *inherently* bad, but its applications and effects are fairly bad for the stock owners.
First up, artificial scarcity: By removing stock of [profitable company here] from the market, you make the remaining parts worth more without having changed the value of the company, by making them rarer than they really need to be, so investing in that company becomes a bigger investment for a similar reward. If you could pay $100 to get a $5/month dividend (very fictitious numbers), why would you prefer paying $150 to get that same $5/month?
Second, you essentially signaling that your company has nothing *better* to do with their extra cash, than to buy back its stock. While that in itself in smaller quantities isn’t anything to bat an eye at, when it happens in a big enough quantity, it becomes frankly worrisome, as the company should be able to grow with that cash, and generate more profit the following year. In capitalism, a company that doesn’t grow or have any idea how to grow further, is a bit of a sitting duck in the marketplace.
Third, the timing of buybacks is usually on years where the dividends would be *chef’s kiss* levels of good, and people may be receiving more money than usual. Those buybacks cost money to make, it reduces the amount of profit, and in turn, it reduces the amount on the dividend checks.
***So, all combined, buybacks just make the stocks harder to sell by making their price higher, before the lack of growth makes the company flinch and fail, and then to boot, it reduces the size of the dividends I would get.***
And that’s essentially how it boils down, as far as I know.
Practically, stock buyback is the better option because it leaves each shareholder the choice to cash out or not, all the associated tax and trading fee implication etc. But, dividends feel like getting your earnings, while stock buybacks feel like money going to someone else.
And often, the complainers aren’t even shareholders, so it’s just a bunch of hot air.
Dividends are basically like interest payments when you deposit money a kind of reward for putting your money with a group for a while, regular dividends are an indication of the long term growth and stability of a company. Stock buybacks are generally the company has a surplus of cash and has run out of ideas on where to spend it.
Practically, stock buyback is the better option because it leaves each shareholder the choice to cash out or not, all the associated tax and trading fee implication etc. But, dividends feel like getting your earnings, while stock buybacks feel like money going to someone else.
And often, the complainers aren’t even shareholders, so it’s just a bunch of hot air.
Buybacks are often purchased with funds that could have otherwise been used to reinvest in or expand the company, or improve the wages of employees.
Recently, several companies have faced criticism for cutting back wages and laying off employees “due to the economy”, but then announced billion-dollar stock buyback proposals.
Buybacks are often purchased with funds that could have otherwise been used to reinvest in or expand the company, or improve the wages of employees.
Recently, several companies have faced criticism for cutting back wages and laying off employees “due to the economy”, but then announced billion-dollar stock buyback proposals.
Stock buybacks work the same as every other investment. You need to buy low and sell high. Stock buybacks are usually done indiscriminate to price, and results in overpaying for a stock. This will only benefit shareholders that sell at a high price, and causes a loss of value for everyone else.
Stock buybacks work the same as every other investment. You need to buy low and sell high. Stock buybacks are usually done indiscriminate to price, and results in overpaying for a stock. This will only benefit shareholders that sell at a high price, and causes a loss of value for everyone else.
Stock buybacks are basically a way of saying “hey, we have extra money, but investing more money into the business won’t make us more money than just buying stock to bump up the share price.” SP500 companies are priced around pretty high expected growth, so it can reflect badly on the company’s lack of faith in their own business
Stock buybacks are basically a way of saying “hey, we have extra money, but investing more money into the business won’t make us more money than just buying stock to bump up the share price.” SP500 companies are priced around pretty high expected growth, so it can reflect badly on the company’s lack of faith in their own business
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