Stock Buybacks as a Global Trend?

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SimpleGift
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Stock Buybacks as a Global Trend?

Post by SimpleGift » Tue May 01, 2018 5:04 pm

Most investors are aware that stock buybacks have been making up over 50% of the cash that U.S. companies are returning to shareholders in recent years (in addition to dividends) — but it appears this shift toward stock buybacks has also started to spread to other parts of the world (chart below).
  • Image
    NOTE: Total Shareholder Payouts = Dividends + Net Share Buybacks
    Data source: Damodaran
While U.S. companies are returning far more cash to shareholders as buybacks than their global counterparts, European and Canadian firms approached a 40% share in 2017 — and Japanese and Indian companies were approaching 25%. On the map below, share repurchases appear to be a contagion spreading out from North America to points both east and west!
Your thoughts about this global trend?
Cordially, Todd

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Re: Stock Buybacks as a Global Trend?

Post by SimpleGift » Tue May 01, 2018 7:21 pm

Just to see if share buybacks are increasing at the expense of dividends (or in addition to dividends), Mr. Damodaran also provides dividend yield data for each of the world regions, ranked below in the same order as the chart in the OP:
Just eyeballing the charts, there appears to be an inverse relationship between share buybacks and dividend yields, as one might expect — the higher the buybacks, the lower the dividend yield. When regressed against each other, R^2 = -0.29 (chart below).
Thus share buybacks appear to be increasing at the expense of dividends (as seems logical), and not in addition to them.
Last edited by SimpleGift on Wed May 02, 2018 10:33 am, edited 1 time in total.
Cordially, Todd

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Re: Stock Buybacks as a Global Trend?

Post by jharkin » Wed May 02, 2018 8:31 am

Ive seen more than one article that draws a parallel between this trend and exploding executive compensation packages and widening CEO / rank and file pay gaps.

Dividends return value to all current shareholders. But large chunks of executive and board compensation packages are tied up in deferred compensation - primarily options - which have no liquid value until exercised.

Dividends dont put money in the CEO's pocket until s/he can exercise those options and buy shares. Buybacks drive up the price and increase the values of executive options today.

There are lots more reasons that boards love buybacks, but Im not an expert on this so you can read and decide for yourself:

https://www.forbes.com/sites/aalsin/201 ... dda29c6b1e
https://www.reuters.com/investigates/sp ... nibalized/

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Re: Stock Buybacks as a Global Trend?

Post by Jack FFR1846 » Wed May 02, 2018 9:05 am

jharkin,

That's pretty cynical to say that executives promote buybacks only to boost their personal compensation at the expense of the company and employees. I think you're 100% right, though.

To me, a stock buy back means that the leaders of the company have decided that they don't know how to use money to make more money, profits, gain efficiency or develop new products that will become future profits. In short, they're too stupid to run the business, so they're cashing out, since any business who would keep them as the head is too uninformed or corrupt to dump them and get someone who actually knows how to run a business. If they retire the shares, then it's bribing other shareholders to go along with the scheme since there would be a temporary bump in stock price.

As we've all seen, when a company gets a big pile of cash, the very last thing they'd want to do is provide better employee benefits, help an overworked staff with new hires or put money into R & D to develop new products.
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Re: Stock Buybacks as a Global Trend?

Post by SimpleGift » Wed May 02, 2018 11:06 am

Jack FFR1846 wrote:
Wed May 02, 2018 9:05 am
To me, a stock buy back means that the leaders of the company have decided that they don't know how to use money to make more money, profits, gain efficiency or develop new products that will become future profits.
Certainly if share repurchases are coming at the expense of innovation and capital investment in long-term projects, then shareholders will eventually suffer over the long haul. But if buybacks are just a one-for-one replacement for dividends that would otherwise be paid out anyway (as the crude analysis upthread possibly suggests), they might be beneficial, tax-wise, over dividends for taxable buy-and-hold investors.

Just to add: If buybacks continue to make up an ever increasing share of total payouts to shareholders globally, dividend yield as a metric to compare stocks markets worldwide will likely become obsolete (if it hasn't already). Total payout yield (dividend yield + buyback yield) will become a more relevant metric for investors.
Cordially, Todd

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Re: Stock Buybacks as a Global Trend?

Post by garlandwhizzer » Wed May 02, 2018 2:08 pm

Simplegift wrote:

Just to add: If buybacks continue to make up an ever increasing share of total payouts to shareholders globally, dividend yield as a metric to compare stocks markets worldwide will likely become obsolete (if it hasn't already). Total payout yield (dividend yield + buyback yield) will become a more relevant metric for investors.
1+

That's the rational analysis. There is however among many investors a preference for income (dividends) over total return (buybacks). I'm a total return guy personally, but many older retired folks like having those checks coming in every month or quarter.

One other point, emerging markets countries tend to do less in the way of buybacks. Part of the reason for this is the increased growth rate of those economies where excess cash flow and new stock issuance is spent on increasing jobs and capital equipment assuming that their robust growth continues. EM have growing middle classes and less in the way of expected future debt and demographic headwinds than DM. Corporate profits and issue new stock issuance (diluting existing shareholder equity, the opposite of distributing money to shareholders) provides new capital equipment/employment outlays to soak up that expected robust future demand. This is good for long term economic growth and increasing corporate profits, not as good for existing shareholders. There is not a similar level of optimism among most DM corporations about future macroeconomic prospects for robust growth and ever increasing aggregate domestic demand. Hence DM often distribute cash to shareholders in buybacks and dividends instead of increasing capital outlays and employment. Ultimately this means that they believe that future domestic demand is likely to grow at a modest rather than robust pace.

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Re: Stock Buybacks as a Global Trend?

Post by MrPotatoHead » Wed May 02, 2018 2:22 pm

It is just another way that CEO and Board of Director compensation robs the shareholders blind. Another thing to watch is companies that buy back shares and then award a new block of shares to the CEO and members of the board.

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Re: Stock Buybacks as a Global Trend?

Post by SimpleGift » Wed May 02, 2018 9:48 pm

From Mr. Damodaran's data, one can also compute the total shareholder payout yields (dividends + net buybacks) for the various world regions in his data set (chart below):
  • Image
    NOTE: Average total payout yield is simple arithmetic mean, not cap-weighted.
    Data source: Damodaran
With an average total payout yield of about 3.2% for the world as a whole, buybacks clearly appear to be replacing a significant portion of dividends in the developed world, including the U.S., Europe and Canada — though dividends still comprise the vast majority of total shareholder payouts in emerging markets and other Asian countries.

One thought: If interest rates trend higher in the years ahead, it will be interesting to see if buybacks continue to grow at their current pace in the developed world. It's one thing for companies to be borrowing money to fund buybacks at 1%-2% and quite another to consider taking on this debt if interest rates are in the 3%-4% range.
Last edited by SimpleGift on Wed May 02, 2018 10:45 pm, edited 1 time in total.
Cordially, Todd

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Re: Stock Buybacks as a Global Trend?

Post by columbia » Wed May 02, 2018 10:03 pm

Presumably relevant:

Apple Says It Will Buy Back $100 Billion in Stock
https://mobile.nytimes.com/2018/05/01/t ... nings.html

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Re: Stock Buybacks as a Global Trend?

Post by Bfwolf » Thu May 03, 2018 12:59 am

A buyback should generally have no impact on the share price while dividends will reduce the stock price. So for company executives with tons of stock options that don't pay any dividends before they're executed, it's easy to be cynical and think they're financially motivated to prefer buybacks. And they probably are. Especially since the buybacks are sometimes combined with a stock grant to these executives.

BUT, looking at the charts Simplegift shared, the USA looks to be largely in line in terms of total return compared to other developed countries despite having buybacks be a larger portion of the total return. So in aggregate, is there any hard evidence that these share buybacks are actually worse than dividends for investors? We know they're potentially better from a tax treatment perspective.

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Re: Stock Buybacks as a Global Trend?

Post by motorcyclesarecool » Thu May 03, 2018 4:37 am

Bfwolf wrote:
Thu May 03, 2018 12:59 am
[....]So in aggregate, is there any hard evidence that these share buybacks are actually worse than dividends for investors? We know they're potentially better from a tax treatment perspective.
It is really easy for the layperson to see something sinister in a financial tool he or she doesn’t understand. Almost everyone understands dividends, but very few understand how stock buybacks are better for the shareholders tax-wise than dividends. It’s easy to grab their attention to alarming articles claiming that companies are cooking the books to inflate their share price without increasing their overall value.

When I worked for a Dow component Megacorp many in the lunchroom were mistrustful of stock buybacks, but felt good when the company paid a dividend. That was before my Boglehead days. How can we educate the broad public?
Understand that choosing an HDHP is very much a "red pill" approach. Most would rather pay higher premiums for a $20 copay per visit. They will think you weird for choosing an HSA.

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Re: Stock Buybacks as a Global Trend?

Post by gasman » Thu May 03, 2018 4:59 am

Is there any data about the nature of buybacks? I.e., How much of them actually go towards reducing the amount of shares outstanding vs. preventing or mitigating the effect of dilution of stock grants and options packages?

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Re: Stock Buybacks as a Global Trend?

Post by Glockenspiel » Thu May 03, 2018 5:53 am

Jack FFR1846 wrote:
Wed May 02, 2018 9:05 am
jharkin,

That's pretty cynical to say that executives promote buybacks only to boost their personal compensation at the expense of the company and employees. I think you're 100% right, though.
I'm not sure why this is cynical. Of course CEOs and CFOs want to boost their own pay at the expense of low-level employees. Entry-level/low-level employees have very limited power in negotiating a raise or increased benefits for themselves.

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Re: Stock Buybacks as a Global Trend?

Post by UpperNwGuy » Thu May 03, 2018 6:28 am

Jack FFR1846 wrote:
Wed May 02, 2018 9:05 am
As we've all seen, when a company gets a big pile of cash, the very last thing they'd want to do is provide better employee benefits, help an overworked staff with new hires or put money into R & D to develop new products.
This is the heart of the matter. We're a bunch of investors debating whether buybacks help executives and board members at the expense of general investors. The real losers are the employees.

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Re: Stock Buybacks as a Global Trend?

Post by susze » Thu May 03, 2018 6:55 am

A great quote I read on buybacks by one of my favorite independent analysts Ive been following for a while this is if buybacks are done with the right intention like apple.

“The purpose of buybacks isn’t to increase share price. It’s to offer the same earnings to fewer shareholders. The price is an argument between those shareholders on what those earnings are worth. Nothing to do with the company.” - asymco

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Re: Stock Buybacks as a Global Trend?

Post by jharkin » Thu May 03, 2018 7:22 am

motorcyclesarecool wrote:
Thu May 03, 2018 4:37 am
Bfwolf wrote:
Thu May 03, 2018 12:59 am
[....]So in aggregate, is there any hard evidence that these share buybacks are actually worse than dividends for investors? We know they're potentially better from a tax treatment perspective.
It is really easy for the layperson to see something sinister in a financial tool he or she doesn’t understand. Almost everyone understands dividends, but very few understand how stock buybacks are better for the shareholders tax-wise than dividends. It’s easy to grab their attention to alarming articles claiming that companies are cooking the books to inflate their share price without increasing their overall value.

When I worked for a Dow component Megacorp many in the lunchroom were mistrustful of stock buybacks, but felt good when the company paid a dividend. That was before my Boglehead days. How can we educate the broad public?

Look at the Reuters piece i linked in the the 3rd post.

The authors where pointing out the at issue is not just about buybacks vs. dividends as a use of capital... They also talk about putting a larger share of capital to that than reinvesting in the business for growth. HP and IBM where cited of examples where they focus on ever increasing buybacks to drive up share price while simultaneously gutting R&D spend.


Just because we are cynical doesn't mean we are uneducated. My own company spends millions in buybacks every year. Yes, the increased share price helps bump the value of the 500 or so RSUs I get vested every year..... but that's just a rounding error compared to the benefit to the C-suite and their 8 figures worth of unvested options. Option grants which are tied to EPS, share price targets and margin, BTW. Meanwhile there are still round after round of restructuring and layoffs, in spite of the fact we haven't had a net loss quarter in years and are trying to grow our product portfolio.

Thais not ignorant cynicism. That's reality. I'm just a cog in the machine, and I know it. Doesn't mean I have to like being a cog.

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Re: Stock Buybacks as a Global Trend?

Post by snarlyjack » Thu May 03, 2018 7:36 am

Not to be to cynical about it.

As a investor I like both dividends & buybacks.
I think they both help me...

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Re: Stock Buybacks as a Global Trend?

Post by david1082b » Thu May 03, 2018 7:44 am

motorcyclesarecool wrote:
Thu May 03, 2018 4:37 am
It is really easy for the layperson to see something sinister in a financial tool he or she doesn’t understand. Almost everyone understands dividends, but very few understand how stock buybacks are better for the shareholders tax-wise than dividends. It’s easy to grab their attention to alarming articles claiming that companies are cooking the books to inflate their share price without increasing their overall value.

When I worked for a Dow component Megacorp many in the lunchroom were mistrustful of stock buybacks, but felt good when the company paid a dividend. That was before my Boglehead days. How can we educate the broad public?
I'm not sure if almost everyone understands dividends. The number of people who are confused at a sharp price drop when a big distribution happens shows a lot of people don't know what is going on. There are loads of pro-dividend posts on forums that imply that the writers think that dividends are magic money being given out with no consequences for the net value of the entity paying out the cash ("with big dividends I get price growth AND payouts, unlike you guys going for price growth only, how about that eh?"). This lack of understanding of dividends is what leads to the negative attitude towards buybacks I believe. Also, thanks to how people get paid for work, people like cash in hand from investing too and don't like the idea of having to sell some stock in future, since "buy and hold" is taken literally by a lot of people.

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Re: Stock Buybacks as a Global Trend?

Post by SimpleGift » Thu May 03, 2018 11:08 am

Though much of the commentary about share buybacks that one sees in the financial press is negative (and often sensational), this recent research paper by Cliff Asness of AQR Capital presents a more measured and positive viewpoint:

Buyback Derangement Syndrome
Cliff Asness et. al. wrote:The popular press is replete with commentary seeking to damn the behavior of corporate managers in handing free cash flow back into the hands of shareholders. Investment professionals have even been heard to comment on the profligate use of free cash flow when it is used to buy back common shares. These criticisms are often, even regularly, without merit (at least merit that can be demonstrated), sometimes glaringly so.

Whilst there is always the possibility for agency issues to create incentives for corporate managers to engage in sub-optimal share repurchase decisions, we feel that in aggregate share repurchase activity is far less nefarious than the popular press would lead you to believe. In fact there is at least as much “agency theory” arguing that paying back free cash flow is a positive as there is that it’s a negative.

Aggregate share repurchase activity has not been at historical highs when measured properly, and when netted against debt issuance is almost a non-event, does not mechanically create earnings (EPS) growth, does not stifle aggregate investment activity, and has not been the primary cause for recent stock market strength. These myths should be discarded.
One can usually depend on Mr. Asness for an iconoclastic (and well researched) viewpoint on an investing topic!
Cordially, Todd

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Re: Stock Buybacks as a Global Trend?

Post by patrick013 » Thu May 03, 2018 1:30 pm

What if the buyback is involuntary ? So if you needed the
money you could sell your shares anyway. But a buyback forces
you to sell your shares you might want to keep. To me it's
kind of a non-event then. Sure the company has less cash on
it's books but the PV of earnings would calc the same way
concerning current corporate expected return. Most companies
trade at several times book value also where PV would be higher
than liquidation value computed as book value plus an increment
for appraisal of tangible assets if sold. More stuff for journalists
to write about.

Ticker PKW has very good 10 year returns but lately the 500 is
beating it.
age in bonds, buy-and-hold, 10 year business cycle

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Re: Stock Buybacks as a Global Trend?

Post by motorcyclesarecool » Thu May 03, 2018 6:55 pm

david1082b wrote:
Thu May 03, 2018 7:44 am
motorcyclesarecool wrote:
Thu May 03, 2018 4:37 am
It is really easy for the layperson to see something sinister in a financial tool he or she doesn’t understand. Almost everyone understands dividends, but very few understand how stock buybacks are better for the shareholders tax-wise than dividends. It’s easy to grab their attention to alarming articles claiming that companies are cooking the books to inflate their share price without increasing their overall value.

When I worked for a Dow component Megacorp many in the lunchroom were mistrustful of stock buybacks, but felt good when the company paid a dividend. That was before my Boglehead days. How can we educate the broad public?
I'm not sure if almost everyone understands dividends. The number of people who are confused at a sharp price drop when a big distribution happens shows a lot of people don't know what is going on. There are loads of pro-dividend posts on forums that imply that the writers think that dividends are magic money being given out with no consequences for the net value of the entity paying out the cash ("with big dividends I get price growth AND payouts, unlike you guys going for price growth only, how about that eh?"). This lack of understanding of dividends is what leads to the negative attitude towards buybacks I believe. Also, thanks to how people get paid for work, people like cash in hand from investing too and don't like the idea of having to sell some stock in future, since "buy and hold" is taken literally by a lot of people.
That’s a really good point. Maybe people don’t fear / loathe dividends.
Understand that choosing an HDHP is very much a "red pill" approach. Most would rather pay higher premiums for a $20 copay per visit. They will think you weird for choosing an HSA.

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Re: Stock Buybacks as a Global Trend?

Post by motorcyclesarecool » Thu May 03, 2018 6:58 pm

patrick013 wrote:
Thu May 03, 2018 1:30 pm
What if the buyback is involuntary ? So if you needed the
money you could sell your shares anyway. But a buyback forces
you to sell your shares you might want to keep. To me it's
kind of a non-event then.
I’m not sure I know what you’re talking about, other than taking a company private...
Understand that choosing an HDHP is very much a "red pill" approach. Most would rather pay higher premiums for a $20 copay per visit. They will think you weird for choosing an HSA.

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Re: Stock Buybacks as a Global Trend?

Post by CyclingDuo » Thu May 03, 2018 8:16 pm

SimpleGift wrote:
Tue May 01, 2018 5:04 pm
Most investors are aware that stock buybacks have been making up over 50% of the cash that U.S. companies are returning to shareholders in recent years (in addition to dividends) — but it appears this shift toward stock buybacks has also started to spread to other parts of the world (chart below).
  • Image
    NOTE: Total Shareholder Payouts = Dividends + Net Share Buybacks
    Data source: Damodaran
While U.S. companies are returning far more cash to shareholders as buybacks than their global counterparts, European and Canadian firms approached a 40% share in 2017 — and Japanese and Indian companies were approaching 25%. On the map below, share repurchases appear to be a contagion spreading out from North America to points both east and west!
Your thoughts about this global trend?
Since the SEC legalized buybacks in 1982 here in the US, it has been a part of the "yield" to factor in the buyback plus the dividend yield to find the true yield. Before that it was illegal and considered stock manipulation. When you speak of global trend you would need to identify the legality in each country.

That being said, the "game" changed here in the US way back in 1982. Most focus on a dividend yield and try to compare that to the bond market, but one should really look at the combined yield of dividends plus the share buybacks.
"Everywhere is within walking distance if you have the time." ~ Steven Wright

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Re: Stock Buybacks as a Global Trend?

Post by patrick013 » Thu May 03, 2018 8:39 pm

motorcyclesarecool wrote:
Thu May 03, 2018 6:58 pm
patrick013 wrote:
Thu May 03, 2018 1:30 pm
What if the buyback is involuntary ? So if you needed the
money you could sell your shares anyway. But a buyback forces
you to sell your shares you might want to keep. To me it's
kind of a non-event then.
I’m not sure I know what you’re talking about, other than taking a company private...
I'm just saying a buyback can be voluntary or involuntary, opt-in or
opt-out kind of thing. But either way you get money for your shares
when sold whether you buy them back at a later date. Potentially
overuse could render a company private. I think the best buybacks
would be voluntary, even unannounced just thru the market.
age in bonds, buy-and-hold, 10 year business cycle

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Re: Stock Buybacks as a Global Trend?

Post by Bfwolf » Thu May 03, 2018 10:06 pm

patrick013 wrote:
Thu May 03, 2018 8:39 pm
motorcyclesarecool wrote:
Thu May 03, 2018 6:58 pm
patrick013 wrote:
Thu May 03, 2018 1:30 pm
What if the buyback is involuntary ? So if you needed the
money you could sell your shares anyway. But a buyback forces
you to sell your shares you might want to keep. To me it's
kind of a non-event then.
I’m not sure I know what you’re talking about, other than taking a company private...
I'm just saying a buyback can be voluntary or involuntary, opt-in or
opt-out kind of thing. But either way you get money for your shares
when sold whether you buy them back at a later date. Potentially
overuse could render a company private. I think the best buybacks
would be voluntary, even unannounced just thru the market.
Still don't understand what you mean. Stock buybacks are voluntary. You can choose to sell your shares or keep your shares.

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Re: Stock Buybacks as a Global Trend?

Post by Bfwolf » Thu May 03, 2018 10:11 pm

I find it interesting that people have this great fear or buybacks taking away from reinvestment in the company but these people don't seem to have the same fear of dividends doing the same.

I seem to recall Simplegift posting something in the past showing that total cash return to shareholders is not higher now than it used to be....it's just that dividends are lower and buybacks are higher. If this is true, then there has been no shift of money from reinvestment to cash returned to shareholders.

Furthermore, I think lots of investors believe companies use their free cash unwisely when reinvesting and would be better off returning MORE of it to shareholders.

I'm also a little confused by this idea that buybacks increase stock price. I have trouble seeing how mechanically. If a company is worth $100M and has 10M shares at $10 apiece, and then buys back 1M of the shares (at a cost of $10M) and retires them, the company is now worth $90M and has 9M shares....so each share would still be worth $10 apiece.

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Re: Stock Buybacks as a Global Trend?

Post by SimpleGift » Thu May 03, 2018 10:53 pm

Bfwolf wrote:
Thu May 03, 2018 10:11 pm
I seem to recall Simplegift posting something in the past showing that total cash return to shareholders is not higher now than it used to be....it's just that dividends are lower and buybacks are higher. If this is true, then there has been no shift of money from reinvestment to cash returned to shareholders.
Good memory! I'd forgotten that we had a Forum thread a couple of years ago that looked at the Total Payout Yield (dividends + net share buybacks) of the S&P 500 companies from 1982-2015:
  • • Dividend Yield = Trailing 12 months cash dividends / Market capitalization
    • Net Buyback Yield = (Trailing 12 month stock repurchases - new stock issuance) / Market capitalization
Since the total payout yield has averaged about 3.2% over the 34-year period, one can make a good case that net share repurchases today are mostly just replacing funds that U.S. companies were paying out in dividends thirty years ago.
Cordially, Todd

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Re: Stock Buybacks as a Global Trend?

Post by SimpleGift » Thu May 03, 2018 11:39 pm

Just to add: Interesting to note that the average total payout yield (dividends + net buybacks) of the U.S. market in recent decades (3.2% above) is exactly the same as the average total payout yield of all the world's regions in 2017 (3.2%, from the OP).

Yes, a meaningless coincidence — but it does indicate that companies worldwide have been returning between 3%-4% annually in total payouts to shareholders, on average, as a baseline reference point.
Cordially, Todd

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Re: Stock Buybacks as a Global Trend?

Post by lazyday » Fri May 04, 2018 2:12 am

SimpleGift wrote:
Thu May 03, 2018 10:53 pm
• Net Buyback Yield = (Trailing 12 month stock repurchases - new stock issuance) / Market capitalization
Above is for a chart of US data.

This is from an earlier post in this thread, with global data:
SimpleGift wrote:
Wed May 02, 2018 9:48 pm
From Mr. Damodaran's data, one can also compute the total shareholder payout yields (dividends + net buybacks) for the various world regions in his data set (chart below):
  • Image
    NOTE: Average total payout yield is simple arithmetic mean, not cap-weighted.
    Data source: Damodaran
I didn't read that long Damodaran blog post. Does the 2017 single year chart above really show net buyback yield?

Of course 2017 was a good year economically. If we took a "Cyclically Adjusted" approach like Shiller does with earnings, and used 10 years of data, I expect the net buyback yield will be much less impressive.

I don't recall what data or judgement AQR uses* when predicting future net buyback yield, but when predicting future returns, they assume a global developed (including US) future net buyback yield of -0.1%. See exhibit 2 (pdf).

* For methodology, google AQR capital market assumptions, and see the 2018 and 2017 papers including appendix.

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Re: Stock Buybacks as a Global Trend?

Post by lazyday » Fri May 04, 2018 2:17 am

patrick013 wrote:
Thu May 03, 2018 8:39 pm
I'm just saying a buyback can be voluntary or involuntary, opt-in or
opt-out kind of thing.
You might be thinking of reorganizations.

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Re: Stock Buybacks as a Global Trend?

Post by SimpleGift » Fri May 04, 2018 8:42 am

lazyday wrote:
Fri May 04, 2018 2:12 am
SimpleGift wrote:
Thu May 03, 2018 10:53 pm
• Net Buyback Yield = (Trailing 12 month stock repurchases - new stock issuance) / Market capitalization
I didn't read that long Damodaran blog post. Does the 2017 single year chart above really show net buyback yield?
Damodaran doesn't say specifically, but as far as I can tell, his 2017 data for the U.S. is right in line with Meb Faber's and Wisdom Tree's other U.S. historical buyback yield data upthread — which definitely use net buyback yield.

It also agrees with Ibbotson's historical U.S. buyback yield data (chart below):
Added together, the U.S. dividend yield and net buyback yield has averaged between 3%-4% since about 1980.
Cordially, Todd

lazyday
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Re: Stock Buybacks as a Global Trend?

Post by lazyday » Fri May 04, 2018 9:46 am

SimpleGift wrote:
Fri May 04, 2018 8:42 am
.... Wisdom Tree's other U.S. historical buyback yield data upthread — which definitely use net buyback yield.

It also agrees with Ibbotson's historical U.S. buyback yield data (chart below)
Thanks. I'm more interested in ex-US net buybacks, but will probably look at those sources.

By the way, the WT link has changed from https://www.wisdomtree.com/resource-lib ... -16-95.pdf to https://www.wisdomtree.com/-/media/us-m ... -16-95.pdf

In case someone's reading this from the future, I found the link by googling wt-research-commentary-06-02-16-95

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Re: Stock Buybacks as a Global Trend?

Post by lazyday » Fri May 04, 2018 11:32 am

From that Wisdom Tree paper:
We believe the summation of current dividend yield and net buyback yields can be viewed as an important indicator for long-term return potential. The reason: An investor does not need to assume there is any real growth on top of those two sources of returns.
This ignores an important source of growth: earnings that are not used for either dividends or stock buybacks, but reinvested in the company. If we assume that on average, the corporate return from reinvesting earnings is about the same as stock market returns (has this been empirically tested?) then we could say that market return = dividend yield + net buyback yield + net earnings yield = total earnings yield. Or predicted market return = 1/CAPE.

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Re: Stock Buybacks as a Global Trend?

Post by Boglegrappler » Fri May 04, 2018 11:55 am

Buybacks are fine to do if the cash is excess to what is needed to maintain and grow the business. As Buffett has pointed out repeatedly, it is a preferred method for using such excess cash when compared to dividends.

The key to it is--at what price are the shares purchased? If the price is too high, then it harms the remaining shareholders and benefits those who sell into the buyback bid. If its lower (which is the objective) it benefits the shareholders who don't sell any of their shared.

As far as buybacks signaling incompetent or unimaginative management...well, there's some possibility of that. But sometimes businesses produce more cash than can be properly reinvested in that particular business. I'd rather see dividends or buybacks occurring than to have someone trying his hand at being the next Buffett by entering a different business. Most managements know their own business, and that's the limit to it. Giving the excess cash back to the shareholders one way or another is more likely to be favored in the market than announcing that you're starting the next Berkshire Hathaway.

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patrick013
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Re: Stock Buybacks as a Global Trend?

Post by patrick013 » Fri May 04, 2018 12:26 pm

Bfwolf wrote:
Thu May 03, 2018 10:06 pm
patrick013 wrote:
Thu May 03, 2018 8:39 pm
motorcyclesarecool wrote:
Thu May 03, 2018 6:58 pm
patrick013 wrote:
Thu May 03, 2018 1:30 pm
What if the buyback is involuntary ? So if you needed the
money you could sell your shares anyway. But a buyback forces
you to sell your shares you might want to keep. To me it's
kind of a non-event then.
I’m not sure I know what you’re talking about, other than taking a company private...
I'm just saying a buyback can be voluntary or involuntary, opt-in or
opt-out kind of thing. But either way you get money for your shares
when sold whether you buy them back at a later date. Potentially
overuse could render a company private. I think the best buybacks
would be voluntary, even unannounced just thru the market.
Still don't understand what you mean. Stock buybacks are voluntary. You can choose to sell your shares or keep your shares.
The last I read buybacks can be involuntary. You would receive a
notice in your account stating 10% of your shares would mandatorily
be bought back, for example. You would not have a choice.

Also, taxes were proposed on the remaining outstanding shares if
it could be determined that the purpose of the buyback was to shield
gains from taxation. But that idea has not taken place.

So just more fuel for journalists and something for the IRS to review.
IMO.
age in bonds, buy-and-hold, 10 year business cycle

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Re: Stock Buybacks as a Global Trend?

Post by Waba » Fri May 04, 2018 3:23 pm

lazyday wrote:
Fri May 04, 2018 11:32 am
From that Wisdom Tree paper:
We believe the summation of current dividend yield and net buyback yields can be viewed as an important indicator for long-term return potential. The reason: An investor does not need to assume there is any real growth on top of those two sources of returns.
This ignores an important source of growth: earnings that are not used for either dividends or stock buybacks, but reinvested in the company. If we assume that on average, the corporate return from reinvesting earnings is about the same as stock market returns (has this been empirically tested?) then we could say that market return = dividend yield + net buyback yield + net earnings yield = total earnings yield. Or predicted market return = 1/CAPE.
Returns from reinvesting tend to be lower on average. See e.g. https://alphaarchitect.com/2018/03/20/b ... nvestment/

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Re: Stock Buybacks as a Global Trend?

Post by Bfwolf » Fri May 04, 2018 3:38 pm

patrick013 wrote:
Fri May 04, 2018 12:26 pm
The last I read buybacks can be involuntary. You would receive a
notice in your account stating 10% of your shares would mandatorily
be bought back, for example. You would not have a choice.
Do you have an example of this? I've never heard of it. Here's an article detailing some of the very rare occasions you might be forced to sell your stock.

https://www.fool.com/knowledge-center/c ... r-sto.aspx

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Re: Stock Buybacks as a Global Trend?

Post by Bfwolf » Fri May 04, 2018 3:42 pm

Boglegrappler wrote:
Fri May 04, 2018 11:55 am
The key to it is--at what price are the shares purchased? If the price is too high, then it harms the remaining shareholders and benefits those who sell into the buyback bid. If its lower (which is the objective) it benefits the shareholders who don't sell any of their shared.
I disagree that this is the key to it, and it's not something I want management of a company I'm invested in worrying about.

The price paid will be the market price. That's the "right" price at any point in time. Management should not be trying to market time. Their job is to determine if they have excess cash, and to return it to shareholders when they do at market prices.

Every investor who owns Company A makes a decision every second the market is open about whether they want to be invested in Company A or not. As soon as the price dips below what they believe Company A is worth, they can hit that sell button.

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patrick013
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Re: Stock Buybacks as a Global Trend?

Post by patrick013 » Sat May 05, 2018 12:56 pm

Bfwolf wrote:
Fri May 04, 2018 3:38 pm
patrick013 wrote:
Fri May 04, 2018 12:26 pm
The last I read buybacks can be involuntary. You would receive a
notice in your account stating 10% of your shares would mandatorily
be bought back, for example. You would not have a choice.
Do you have an example of this? I've never heard of it. Here's an article detailing some of the very rare occasions you might be forced to sell your stock.

https://www.fool.com/knowledge-center/c ... r-sto.aspx
Sorry no I don't. Probably in Barron's the last couple months or so ????
age in bonds, buy-and-hold, 10 year business cycle

lazyday
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Re: Stock Buybacks as a Global Trend?

Post by lazyday » Sun May 06, 2018 3:18 am

Waba wrote:
Fri May 04, 2018 3:23 pm
Returns from reinvesting tend to be lower on average. See e.g. https://alphaarchitect.com/2018/03/20/b ... nvestment/
Thanks.

Come to think of it, I believe Research Affiliates mentions research on poor results from retained earnings, and when predicting equity returns, they don't expect faster growth with lower dividend yield. I feel they are too pessimistic on this.

As I recall, this is in their equity expected returns methodology paper.

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Re: Stock Buybacks as a Global Trend?

Post by Park » Sat Aug 18, 2018 10:29 am

Bfwolf wrote:
Fri May 04, 2018 3:42 pm
Boglegrappler wrote:
Fri May 04, 2018 11:55 am
The key to it is--at what price are the shares purchased? If the price is too high, then it harms the remaining shareholders and benefits those who sell into the buyback bid. If its lower (which is the objective) it benefits the shareholders who don't sell any of their shared.
I disagree that this is the key to it, and it's not something I want management of a company I'm invested in worrying about.

The price paid will be the market price. That's the "right" price at any point in time. Management should not be trying to market time. Their job is to determine if they have excess cash, and to return it to shareholders when they do at market prices.

Every investor who owns Company A makes a decision every second the market is open about whether they want to be invested in Company A or not. As soon as the price dips below what they believe Company A is worth, they can hit that sell button.
I disagree. Look at the graph earlier in the thread on historical dividend and buyback yields. In the last bear market, dividend yields did go down, but buyback yields went down more. That's because companies became net sellers of shares. That's called buying high and selling low.

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Re: Stock Buybacks as a Global Trend?

Post by Church Lady » Sat Aug 18, 2018 10:37 am

He that loveth silver shall not be satisfied with silver; nor he that loveth abundance with increase: this is also vanity. Ecclesiastes 1:8

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Re: Stock Buybacks as a Global Trend?

Post by Park » Sun Aug 19, 2018 1:00 pm


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