No. of Recommendations: 18
It was on this board and this board only that we learned that stock buybacks are not a return of capital to shareholders despite the fact that over the years many of the greatest CEO's, investors, etc. have said otherwise. As always the experts here know best. UCMTSU
Sorry, I honestly can't tell if that's sarcasm.
No, just because a lot of people with agendas say something is so, doesn't make it so.
I mean, obviously it's not a return to shareholders. Do you own shares of any company that did buybacks? Show us a scan of the cheque you received. Oh yeah, you didn't : )
Sure, EPS went up. But cash per share went down. Assuming the buyback was done at something near fair value per share, the two precisely cancel out, so it's not even a return to shareholders in the non-liquid sense of increasing the value of remaining shares. There is no cake.
They only call it a return to shareholders because it's part of "broker economics". i.e., any story that makes the punters willing to part with their cash.
If a company with a really great underlying business does buybacks at no more than fair value per share, buybacks are a sensible way to burn off excess cash and can be very mildly good for value per share, and in a very tax efficient way that is kind to shareholders. But rather obviously the shareholders don't get a distribution when that happens. Follow the money.
And even when it's done well, the value increase is pretty negligible...even buying back 5% of all shares at an average discount of 10% to fair value only increases the value of a remaining share by 0.5%. Be still my heart. And that's a very optimistic case: beyond Berkshire and a few others, most buybacks are done at prices considerably above the fair value of a share, because profits and excess cash and share prices tend to rise in sync during boom times.
Jim
