Bye-Bye Buybacks

Discussion in 'Wall St. News' started by dealmaker, Mar 18, 2020.

  1. DaveV

    DaveV

    Not quite. First, 76% of all US stocks are held in tax-free accounts, so only a small percentage of recipients pay a tax on dividends, and furthermore at a lower tax rate. Second, a dividend payment provided an immediate economic benefit to the recipient. A stock buyback can only provide a benefit in the future, and only if the stock price and company earnings continue to grow.

    With a max 20% tax rate, $0.80 of dividends today will always be worth more that the promise of $1 in gains from buyback in the future.
     
    Last edited: Mar 18, 2020
    #11     Mar 18, 2020
  2. Specterx

    Specterx

    I don't know what fraction of stocks are held in tax-free accounts but 76% sounds outrageously high to me - do you have a source for that?

    The second part of your comment is definitely false: a dividend paid to you today and a buyback executed today are economically identical. Obviously, to convert the buyback gain into cash in your account you need to sell a fraction of your stock holdings. In practice, many companies choose to pay dividends on a regular steady cadence whereas buyback activity is lumpier - but there's no reason this must be the case. Owning shares is by by definition owning a "promise" of future payments (whether via dividends or buybacks), and there are no guarantees - just look at all the companies that have slashed previously steady dividends in the past few weeks, some of which may well go under.
     
    #12     Mar 18, 2020
  3. DaveV

    DaveV

    #13     Mar 18, 2020
  4. ironchef

    ironchef

    Corporations (Airlines, Boeing, cruise lines...) buyback their stocks is like me buying stocks during the raging bull market: Buy high sell low.

    They need to sell stocks to raise $ after their businesses tanked. At least I can hang on. :)
     
    #14     Mar 18, 2020
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  5. Snuskpelle

    Snuskpelle

    Buybacks are completely pointless unless you're planning to sell your shares. Companies end up buying highs.
     
    #15     Mar 18, 2020
  6. Studies have shown that companies are HORRIFIC at timing their buybacks.
    They buy at/near record highs all to inflate their bs earnings
     
    #16     Mar 18, 2020
  7. Starbucks is tone deaf doing a Buyback in the midst of a Meltdown. Even if they have the cash, why not wait until public sentiment is better?
     
    #17     Mar 19, 2020