End of corporate stock buybacks??

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flyfishers83
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End of corporate stock buybacks??

Post by flyfishers83 »

I've been reading a few articles recently where it looks like there is going to be real pressure put on companies receiving any sort of bailout. Does anybody think that this time will be different and that future corporate buybacks will be seriously curtailed (or prohibited) and what does that mean for markets going forward?
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Kenkat
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Re: End of corporate stock buybacks??

Post by Kenkat »

I think they will be curtailed at the very least. I read an article where automakers are required to maintain a reserve since the bailouts of 2008. GM for example was loaned $50 billion and have paid most of that back. Ford reportedly has $37 billion in reserves due to events in 2008 (Ford did not receive bailout money I believe).
index2max
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Re: End of corporate stock buybacks??

Post by index2max »

The problem is stock buybacks or repurchases is when executives or boards of directors are compensated based on targets such as earnings per share (EPS).

All else being equal if the number of shares on the secondary market decreases, the price of the stock increases and so does EPS by default.

So execs and directors of publicly traded companies can juice their compensation at the expense of the company and other shareholders who become bagholders...

It's a perverse system.
grog
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Re: End of corporate stock buybacks??

Post by grog »

"...there is going to be real pressure put on companies receiving any sort of bailout."

I would think the public would not like the idea of companies taking bailout money and using to prop up their share prices. I think the pressure will be on them to use it to minimize layoffs and maintain payroll.
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Stinky
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Re: End of corporate stock buybacks??

Post by Stinky »

flyfishers83 wrote: Wed Mar 18, 2020 8:15 am I've been reading a few articles recently where it looks like there is going to be real pressure put on companies receiving any sort of bailout. Does anybody think that this time will be different and that future corporate buybacks will be seriously curtailed (or prohibited) and what does that mean for markets going forward?
It seems logical that there would be some limitations placed on future stock buybacks as a condition of receiving government assistance.


Something like, “if you accept government assistance, no stock buybacks for X years in the future.”
It's a GREAT day to be alive - Travis Tritt
ebrasmus21
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Re: End of corporate stock buybacks??

Post by ebrasmus21 »

Stinky wrote: Wed Mar 18, 2020 10:05 am
flyfishers83 wrote: Wed Mar 18, 2020 8:15 am I've been reading a few articles recently where it looks like there is going to be real pressure put on companies receiving any sort of bailout. Does anybody think that this time will be different and that future corporate buybacks will be seriously curtailed (or prohibited) and what does that mean for markets going forward?
It seems logical that there would be some limitations placed on future stock buybacks as a condition of receiving government assistance.


Something like, “if you accept government assistance, no stock buybacks for X years in the future.”
Agreed.
Jags4186
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Re: End of corporate stock buybacks??

Post by Jags4186 »

Stinky wrote: Wed Mar 18, 2020 10:05 am
flyfishers83 wrote: Wed Mar 18, 2020 8:15 am I've been reading a few articles recently where it looks like there is going to be real pressure put on companies receiving any sort of bailout. Does anybody think that this time will be different and that future corporate buybacks will be seriously curtailed (or prohibited) and what does that mean for markets going forward?
It seems logical that there would be some limitations placed on future stock buybacks as a condition of receiving government assistance.


Something like, “if you accept government assistance, no stock buybacks for X years in the future.”
I think what we learned about 2008 is that we have very little control over what these companies do with the money the government gives them. From that vantage point, it makes sense that any welfare from the state should be direct to the citizens and not to the corporations. Then the money spent by people can determine who stays afloat and who goes bankrupt. Just because the airlines or hotels may file bankruptcy doesn't mean airlines and hotels will cease to exist. The shareholders will be left holding the bag and the executives won't be getting giant compensation packages.
rasta
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Re: End of corporate stock buybacks??

Post by rasta »

stock buybacks were illegal until 1982, time to revisit making them illegal again.
index2max
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Re: End of corporate stock buybacks??

Post by index2max »

rasta wrote: Wed Mar 18, 2020 10:21 am stock buybacks were illegal until 1982, time to revisit making them illegal again.
Buybacks are mostly there for stock manipulation. Execs and directors on the boards love them, especially of their own compensation is tied to the earnings per share..
DB2
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Re: End of corporate stock buybacks??

Post by DB2 »

index2max wrote: Wed Mar 18, 2020 12:20 pm
rasta wrote: Wed Mar 18, 2020 10:21 am stock buybacks were illegal until 1982, time to revisit making them illegal again.
Buybacks are mostly there for stock manipulation. Execs and directors on the boards love them, especially of their own compensation is tied to the earnings per share..
+1 to both quotes.
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Re: End of corporate stock buybacks??

Post by Ketawa »

index2max wrote: Wed Mar 18, 2020 12:20 pm
rasta wrote: Wed Mar 18, 2020 10:21 am stock buybacks were illegal until 1982, time to revisit making them illegal again.
Buybacks are mostly there for stock manipulation. Execs and directors on the boards love them, especially of their own compensation is tied to the earnings per share..
I also love the potential for stock buybacks. I don't have a taxable account yet, but will soon, and I'd prefer that companies be able to decide whether to return earnings to me in a more tax-efficient manner.
grog wrote: Wed Mar 18, 2020 8:58 am "...there is going to be real pressure put on companies receiving any sort of bailout."

I would think the public would not like the idea of companies taking bailout money and using to prop up their share prices. I think the pressure will be on them to use it to minimize layoffs and maintain payroll.
Stinky wrote: Wed Mar 18, 2020 10:05 am It seems logical that there would be some limitations placed on future stock buybacks as a condition of receiving government assistance.

Something like, “if you accept government assistance, no stock buybacks for X years in the future.”
Better make it illegal for these companies to pay their shareholders dividends as well, otherwise these restrictions will be useless.
mdavis6890
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Re: End of corporate stock buybacks??

Post by mdavis6890 »

Huh? I don't see the logic here. How are stock buybacks bad? How are they particularly favorable to execs, at the expense of others? How are buybacks different in these regards than, say, dividends?
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Ketawa
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Re: End of corporate stock buybacks??

Post by Ketawa »

mdavis6890 wrote: Wed Mar 18, 2020 12:56 pm Huh? I don't see the logic here. How are stock buybacks bad? How are they particularly favorable to execs, at the expense of others? How are buybacks different in these regards than, say, dividends?
They're not very different. Some people just have an axe to grind.
index2max
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Re: End of corporate stock buybacks??

Post by index2max »

Ketawa wrote: Wed Mar 18, 2020 1:01 pm
mdavis6890 wrote: Wed Mar 18, 2020 12:56 pm Huh? I don't see the logic here. How are stock buybacks bad? How are they particularly favorable to execs, at the expense of others? How are buybacks different in these regards than, say, dividends?
They're not very different. Some people just have an axe to grind.

“Buybacks don’t return money to shareholders, only an dividend does.”

SEC research found that many corporate executives sell significant amounts of their own shares after their companies announce stock buybacks, Yahoo Finance reports.

https://www.zerohedge.com/news/2019-05- ... ack-debate

I suggest everyone read this article to understand why share buybacks are a poor use of the company’s money. It also makes a clear distinction of how share buybacks don’t benefit owners, because by selling away your shares, you are no longer an owner anymore.

It’s even worse when companies take out debt to finance share purchases. The company itself and other shareholders are the ones left holding the bag.
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Ketawa
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Re: End of corporate stock buybacks??

Post by Ketawa »

index2max wrote: Wed Mar 18, 2020 1:06 pm “Buybacks don’t return money to shareholders, only an dividend does.”

SEC research found that many corporate executives sell significant amounts of their own shares after their companies announce stock buybacks, Yahoo Finance reports.

https://www.zerohedge.com/news/2019-05- ... ack-debate

I suggest everyone read this article to understand why share buybacks are a poor use of the company’s money. It also makes a clear distinction of how share buybacks don’t benefit owners, because by selling away your shares, you are no longer an owner anymore.

It’s even worse when companies take out debt to finance share purchases. The company itself and other shareholders are the ones left holding the bag.
In the article you linked:
Let’s clear something up. Buybacks do not RETURN money to shareholders. A dividend does.

The only people who receive any capital from the buyback are those who opt to sell their shares. They have their capital back, but they no longer have the shares. Also, while it is believed that buybacks ALWAYS increase share price, that is not necessarily the case. Apple bought a vast amount of shares back in 2018, the stock lost 15% of its value.
The obvious response, which is nothing new to anyone perusing a dividends vs buyback thread, is to sell a portion of your shares in the event of a buyback. Consider the following:

Company with $100 share price
100 outstanding shares
You own 10 shares (10% of them)
Company has $1000 cash reserves and wants to either pay a dividend or buy back shares

Pay dividend
Company distributes $1000 cash to holders of 100 shares at $10/share
Share price drops to $90 for arbitrage reasons, as has been acknowledged in this thread
You receive $100 cash from your 10 shares, you have 10 shares worth $900, and you own 10% of the company

Buy back stock
Company buys back 10 shares
You still own 10 shares, which is still worth $1000, but now represents 11.1% of the company (10/90)
You sell 1 share for $100
You have $100 cash, you have 9 shares worth $900, and you own 10% of the company

The people who are left "holding the bag" in the first case are those who reinvest dividends. The people who are left "holding the bag" in the second case are those who never sell any shares. I don't see a lot of people warning against reinvesting dividends because they'll be left "holding the bag" for the company in the next inevitable downturn. All that matters is total return.
index2max
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Re: End of corporate stock buybacks??

Post by index2max »

Ketawa wrote: Wed Mar 18, 2020 1:29 pm
index2max wrote: Wed Mar 18, 2020 1:06 pm “Buybacks don’t return money to shareholders, only an dividend does.”

SEC research found that many corporate executives sell significant amounts of their own shares after their companies announce stock buybacks, Yahoo Finance reports.

https://www.zerohedge.com/news/2019-05- ... ack-debate

I suggest everyone read this article to understand why share buybacks are a poor use of the company’s money. It also makes a clear distinction of how share buybacks don’t benefit owners, because by selling away your shares, you are no longer an owner anymore.

It’s even worse when companies take out debt to finance share purchases. The company itself and other shareholders are the ones left holding the bag.
In the article you linked:
Let’s clear something up. Buybacks do not RETURN money to shareholders. A dividend does.

The only people who receive any capital from the buyback are those who opt to sell their shares. They have their capital back, but they no longer have the shares. Also, while it is believed that buybacks ALWAYS increase share price, that is not necessarily the case. Apple bought a vast amount of shares back in 2018, the stock lost 15% of its value.
The obvious response, which is nothing new to anyone perusing a dividends vs buyback thread, is to sell a portion of your shares in the event of a buyback. Consider the following:

Company with $100 share price
100 outstanding shares
You own 10 shares (10% of them)
Company has $1000 cash reserves and wants to either pay a dividend or buy back shares

Pay dividend
Company distributes $1000 cash to holders of 100 shares at $10/share
Share price drops to $90 for arbitrage reasons, as has been acknowledged in this thread
You receive $100 cash from your 10 shares, you have 10 shares worth $900, and you own 10% of the company

Buy back stock
Company buys back 10 shares
You still own 10 shares, which is still worth $1000, but now represents 11.1% of the company (10/90)
You sell 1 share for $100
You have $100 cash, you have 9 shares worth $900, and you own 10% of the company

The people who are left "holding the bag" in the first case are those who reinvest dividends. The people who are left "holding the bag" in the second case are those who never sell any shares. I don't see a lot of people warning against reinvesting dividends because they'll be left "holding the bag" for the company in the next inevitable downturn. All that matters is total return.
What about the issue of executives and people sitting on the board of directors juicing their pay by artificially jacking up the earnings per share through stock buybacks?

It’s a huge conflict of interest in that scenario. It’s self-dealing made even worse if the company is using borrowed money to finance it.

I wouldn’t make stock buybacks illegal. The shareholders who are buying and holding, like a real investor or owner would, should be up in arms about share buybacks that benefit the foxes guarding the henhouse. It’s in their best interest to vote against such shenanigans.

Sadly Vanguard’s proxy voting team doesn’t care about major governance issues like this. They only seem worried about “muh diversity” on the boards of directors..
Mickstick
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Re: End of corporate stock buybacks??

Post by Mickstick »

There should be no bailouts for anyone. All these companies doing buybacks would have more leeway to stay alive in a downturn if they didn't go into debt rebuying shares. We need to stop socializing losses. Bankruptcy allows new owners to acquire and run the company more responsibly.
"The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design" - F.A. Hayek, The Fatal Conceit
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Stinky
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Re: End of corporate stock buybacks??

Post by Stinky »

mdavis6890 wrote: Wed Mar 18, 2020 12:56 pm Huh? I don't see the logic here. How are stock buybacks bad? How are they particularly favorable to execs, at the expense of others? How are buybacks different in these regards than, say, dividends?
It’s all about appearances and public perception.

Dividends - good. Buybacks - bad.

Perception. I agree, not reality.
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index2max
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Re: End of corporate stock buybacks??

Post by index2max »

Stinky wrote: Wed Mar 18, 2020 1:57 pm
mdavis6890 wrote: Wed Mar 18, 2020 12:56 pm Huh? I don't see the logic here. How are stock buybacks bad? How are they particularly favorable to execs, at the expense of others? How are buybacks different in these regards than, say, dividends?
It’s all about appearances and public perception.

Dividends - good. Buybacks - bad.

Perception. I agree, not reality.
Take a look at the article I linked above. Buybacks are a great way for insiders (execs/director of a board) to juice their compensation if it depends on the earnings per share going up. It’s self-dealing, a conflict of interest in that scenario.

Dividends are not the same as buybacks.
rustymutt
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Re: End of corporate stock buybacks??

Post by rustymutt »

grog wrote: Wed Mar 18, 2020 8:58 am "...there is going to be real pressure put on companies receiving any sort of bailout."

I would think the public would not like the idea of companies taking bailout money and using to prop up their share prices. I think the pressure will be on them to use it to minimize layoffs and maintain payroll.
What if the public stops caring, or become apathetic. Letting hell in. Seems to me that the overall educational level of the public is being attacked here. Make to just say yes, or get your butt kicked. I think the public is scared. If I speck out, they might jerk my job.
Even educators need education. And some can be hard headed to the point of needing time out.
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Re: End of corporate stock buybacks??

Post by CnC »

index2max wrote: Wed Mar 18, 2020 8:37 am The problem is stock buybacks or repurchases is when executives or boards of directors are compensated based on targets such as earnings per share (EPS).

All else being equal if the number of shares on the secondary market decreases, the price of the stock increases and so does EPS by default.

So execs and directors of publicly traded companies can juice their compensation at the expense of the company and other shareholders who become bagholders...

It's a perverse system.
This is very true.

for the bailouts rather than the government give them money. Each of these companies should sell xxx shares to the US government for whatever the going rate is. To fund the bailout.

It may hurt stock prices but it will be a more realistic value of the company. And the US government should get a pretty good return on their investment.
mdavis6890
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Re: End of corporate stock buybacks??

Post by mdavis6890 »

What about the issue of executives and people sitting on the board of directors juicing their pay by artificially jacking up the earnings per share through stock buybacks?
That's a good point. I would suggest that this is a problem with the comp structure having metrics that can be "gamed" - that is, where the metric can be manipulated contrary to its intent.

Is this a major problem? I don't know much about executive comp. Is EPS a frequent metric for determining bonuses or other exec comp? That doesn't seem like a metric that would naturally be used to my mind. Overall earnings would make more sense to me, but that wouldn't be a problem of course since it's not affected by buybacks.
mdavis6890
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Re: End of corporate stock buybacks??

Post by mdavis6890 »

or the bailouts rather than the government give them money. Each of these companies should sell xxx shares to the US government for whatever the going rate is. To fund the bailout.
No way! There are at least a couple of issues:

- Now you've introduced government stock ownership, giving the government power and incentives and conflicts of interest where it shouldn't belong. Imagine the govt starting to pass laws that favor the company they own part of?
- What price would the government pay? Fair market price you say? But then why would the govt. need to do this? The company could just sell on the open market at fair market price and that's it. So it only makes sense if you would have the govt pay OVER market price, which is basically the same as a bail-out in disguise.

Better to let the companies go bankrupt. Let's keep in mind that many companies continue operating relatively normally throughout bankruptcy. I think a lot of fear-mongering takes place to justify a bailout by saying the workers are all going to get fired, or we won't have any more American cars, or something like that. In reality, the workers benefit little if at all from a bailout. All the bailout money goes to the lending banks, and avoiding bankruptcy protects the unions (not union workers).
Delta1
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Re: End of corporate stock buybacks??

Post by Delta1 »

Watching cnbc...Starbucks literally planning on doing buybacks as we talking...
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Forester
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Re: End of corporate stock buybacks??

Post by Forester »

Worst kind of virtue signaller:

"Any company which is bailed out, must halt buybacks for X years, must jump through these hoops and do XYZ..."

How about NO BAILOUT. So cowardly to approve bailouts but also condemn at the same time. No backbone. Corporations in the long run would be stronger if they were left to fail. Support the ex-employees after that happens, don't reward bad management and bad shareholders.
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Re: End of corporate stock buybacks??

Post by jdilla1107 »

index2max wrote: Wed Mar 18, 2020 2:12 pm
Stinky wrote: Wed Mar 18, 2020 1:57 pm
mdavis6890 wrote: Wed Mar 18, 2020 12:56 pm Huh? I don't see the logic here. How are stock buybacks bad? How are they particularly favorable to execs, at the expense of others? How are buybacks different in these regards than, say, dividends?
It’s all about appearances and public perception.

Dividends - good. Buybacks - bad.

Perception. I agree, not reality.
Take a look at the article I linked above. Buybacks are a great way for insiders (execs/director of a board) to juice their compensation if it depends on the earnings per share going up. It’s self-dealing, a conflict of interest in that scenario.

Dividends are not the same as buybacks.
Isn't this a problem with the compensation structure? It could just as easily be tied to shareholder return as opposed to "stock price".
Scooter57
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Re: End of corporate stock buybacks??

Post by Scooter57 »

You left out one thing. The company buys back 100 shares from executives who were given stock options instead of salary. Then it immediately creates 100 new shares for the next batch of stock options, increasing the number of shares to where they were before. You held and got nothing.

Very few companies doing buybacks end up with fewer shares over the long term because selling new shares when the market is booming is the best way for a company to raise money.
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gmaynardkrebs
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Re: End of corporate stock buybacks??

Post by gmaynardkrebs »

Scooter57 wrote: Wed Mar 18, 2020 4:15 pm You left out one thing. The company buys back 100 shares from executives who were given stock options instead of salary. Then it immediately creates 100 new shares for the next batch of stock options, increasing the number of shares to where they were before. You held and got nothing.

Very few companies doing buybacks end up with fewer shares over the long term because selling new shares when the market is booming is the best way for a company to raise money.
Selling shares during booms? Most buybacks occur when the market is booming.
JonnyB
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Re: End of corporate stock buybacks??

Post by JonnyB »

Corporations don't need bailouts. They have spent billions on stock buybacks. If they need cash they can just do reverse stock buybacks just as easily for as many billions as they need. It doesn't cost taxpayers anything.
Enzo IX
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Re: End of corporate stock buybacks??

Post by Enzo IX »

Scooter57 wrote: Wed Mar 18, 2020 4:15 pm You left out one thing. The company buys back 100 shares from executives who were given stock options instead of salary. Then it immediately creates 100 new shares for the next batch of stock options, increasing the number of shares to where they were before. You held and got nothing.

Very few companies doing buybacks end up with fewer shares over the long term because selling new shares when the market is booming is the best way for a company to raise money.
Bingo, I agree with you 100%.

Theoretically it works on paper in business school, but when it is applied in the real world with CEO and management greed it doesn't return anything to the small investor.
Enzo IX
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Re: End of corporate stock buybacks??

Post by Enzo IX »

There are reasons why Warren Buffett comes in a gets juicy 8% rates on his convertible preferred stock, yet he doesn't believe in dividends himself.
Scooter57
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Re: End of corporate stock buybacks??

Post by Scooter57 »

gmaynardkrebs wrote: Wed Mar 18, 2020 4:19 pm
Scooter57 wrote: Wed Mar 18, 2020 4:15 pm You left out one thing. The company buys back 100 shares from executives who were given stock options instead of salary. Then it immediately creates 100 new shares for the next batch of stock options, increasing the number of shares to where they were before. You held and got nothing.

Very few companies doing buybacks end up with fewer shares over the long term because selling new shares when the market is booming is the best way for a company to raise money.
Selling shares during booms? Most buybacks occur when the market is booming.
The whole reason that buybacks were made legal was that companies were supposed to be given the opportunity to buy back shares when they were undervalued, reducing the float, and increasing shareholder value. But what we saw this past decade was companies buying back shares at the top of the market, often when the company was very overvalued by any reasonable measure, and often borrowing money, and raising costs for the shareholders, to do so. The execs that sold into the buyback are long gone now, enjoying their yachts and private islands. The company still has the debt.

And if you ignore the noise but pay attention to the signal, you should know that all that borrowing has created a massive corporate debt mess that is scaring the pants of anyone who understands finance.
index2max
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Re: End of corporate stock buybacks??

Post by index2max »

Enzo IX wrote: Wed Mar 18, 2020 5:26 pm There are reasons why Warren Buffett comes in a gets juicy 8% rates on his convertible preferred stock, yet he doesn't believe in dividends himself.
Yeah, ol' Uncle Warren doesn't believe in dividends for Berkshite Hathway shareholders because they could just sell their own stock during buyback periods... The whole point of owning a piece or a piece of a business is to enjoy a slice of the profits (i.e. the cashflow).

Some Bogleheads will argue that dividends don't matter, but why would any sane person buy stocks if none of them paid dividends? Buying shares in the hopes of just selling them for more than you paid is just speculation. Call that what it is, gambling. It's not investing.
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Re: End of corporate stock buybacks??

Post by mary1969 »

index2max wrote: Wed Mar 18, 2020 12:20 pm
rasta wrote: Wed Mar 18, 2020 10:21 am stock buybacks were illegal until 1982, time to revisit making them illegal again.
Buybacks are mostly there for stock manipulation. Execs and directors on the boards love them, especially of their own compensation is tied to the earnings per share..
yep. and the 2018 corporate tax cuts were used primarily for buybacks. very little went to the employees. a disgrace and as it turned out a bad investment.
rasta
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Re: End of corporate stock buybacks??

Post by rasta »

a stock without dividends is a Ponzi asset because owners never receive money from the companies they own, they need to keep finding a greater fool to buy, but eventually the last fool buys. follow the money, buffet sure likes to buy dividend paying companies for the cash flow they provide.
index2max
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Re: End of corporate stock buybacks??

Post by index2max »

mary1969 wrote: Wed Mar 18, 2020 7:41 pm
index2max wrote: Wed Mar 18, 2020 12:20 pm
rasta wrote: Wed Mar 18, 2020 10:21 am stock buybacks were illegal until 1982, time to revisit making them illegal again.
Buybacks are mostly there for stock manipulation. Execs and directors on the boards love them, especially of their own compensation is tied to the earnings per share..
yep. and the 2018 corporate tax cuts were used primarily for buybacks. very little went to the employees. a disgrace and as it turned out a bad investment.
If you look inside proxy statements for the details of executive compensation, there's definitely a chance that part of their target performance is based on earnings per share. Not necessarily at all publicly traded companies, but it certainly raises the incentive to use company funds to buyback shares if the board of directors isn't stepping in to stop those shenanigans.

This is what disappoints me about Vanguard. We index our money with them, but they maintain the voting rights and don't lean on companies to stop abusing this practice. They seem more concerned about boardroom skin tone or gender diversity rather than making sure that management at publicly traded companies are looking out for the long-term health of the company and its shareholders.
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Re: End of corporate stock buybacks??

Post by mary1969 »

I'm 54 and semi retired. I took a job with Fedex for health insurance. Started there in 2016. The tax cuts were supposed to trickle to the employees but it did not. I could be wrong but I believe FDX executed at least $2 bln in buys backs since 2018. Stock was around $260 and now at $100. Tariff's and Amazon were the excuse for not compensating employees, but it did not stop buybacks.

I don't work at Fedex for the money. Really just there for the insurance and to get out of the house. A lot of folks are pay-check to pay-check.
Iridium
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Re: End of corporate stock buybacks??

Post by Iridium »

flyfishers83 wrote: Wed Mar 18, 2020 8:15 am I've been reading a few articles recently where it looks like there is going to be real pressure put on companies receiving any sort of bailout. Does anybody think that this time will be different and that future corporate buybacks will be seriously curtailed (or prohibited) and what does that mean for markets going forward?
I will ignore your first sentence, as we are not allowed to discuss proposed legislation here.

You can expect stock buybacks to slow down during a recession, that would fit the typical pattern and wouldn't represent anything 'different'. See figure 1 here which calls buybacks 'retirements': https://www.federalreserve.gov/econres/ ... 170616.htm In fact, one of the advantages of buybacks is that a company can more easily curtail them with less blowback from investors than dividends (once a company starts issuing a dividend, investors get upset when they are cut, whereas buybacks tend to be announced on one-off basis, so there isn't the same expectation of consistency built into them as there are for dividends).

There have been numerous debates on here about whether dividends or stock buybacks even result in any return. My personal opinion is that the market does give a small boost in value to companies that return capital to investors (whether via dividend or buyback), but the effect is drowned out by the gain in value that a healthy company produces naturally. Ultimately, if a recession sets in, buybacks will fall because companies need to conserve cash. The stock price would almost certainly fall at the same time. However, I would argue that the stock price is falling because the company became so unhealthy it cannot afford to do a buyback much more than it is falling because the company decided not to the buyback.
antiqueman
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Re: End of corporate stock buybacks??

Post by antiqueman »

[quote=rasta post_id=5110177 time=1584578491 user_id=137275]
a stock without dividends is a Ponzi asset because owners never receive money from the companies they own, they need to keep finding a greater fool to buy, but eventually the last fool buys. follow the money, buffet sure likes to buy dividend paying companies for the cash flow they provide.
[/quote]

Are you saying that Berkshire Hathaway is a Ponzi scheme?
Corsair
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Re: End of corporate stock buybacks??

Post by Corsair »

President just said during todays press conference he would be on board with those companies receiving bailouts to not be allowed to do stock buybacks.
All posts are my own opinions and are not financial advice.
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simplesimon
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Re: End of corporate stock buybacks??

Post by simplesimon »

Delta1 wrote: Wed Mar 18, 2020 3:14 pm Watching cnbc...Starbucks literally planning on doing buybacks as we talking...
Ironically, it's a better time to do them now than before.
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pennsylvania211
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Re: End of corporate stock buybacks??

Post by pennsylvania211 »

I don't see the big deal about buybacks versus dividends, even after reading the comments above.

Buybacks = shareholders get wealthier (my stock in X now worth $12 from previously $10).
Dividends = shareholders get wealthier (my stock in X is still worth $10, and gave a $2 dividend).

Net result is the same, minus taxes. Buybacks are more tax efficient than dividends. Therefore why wouldn't corporate boards be structured to favor a more tax efficient strategy? Who enjoys paying more taxes than their fair share?

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"In the long run, investing is not about markets at all. Investing is about enjoying the returns earned by businesses." - Jack Bogle
Shallowpockets
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Re: End of corporate stock buybacks??

Post by Shallowpockets »

Rather than stock buybacks perhaps companies should have saved for a rainy day. Or an emergency fund, just like here on BH.
On BH people tend towards having so many months of living expenses held in a way they can use them if needed. It is part of the mantra.
I don’t know what the equivalent analogy of a stock buyback would be for an individual, but surely anything that lessens the chance you might be able to weather a personal crisis would be included.
So, first and foremost, a rainy day fund. For corporate America too. If they did that they might not be freaking out about the survival of their companies.
Seems nowadays that everyone operates on a razor margin, balancing themselves on a thin line between solvency and failure.
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pennsylvania211
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Re: End of corporate stock buybacks??

Post by pennsylvania211 »

Shallowpockets wrote: Fri Mar 20, 2020 6:27 am Rather than stock buybacks perhaps companies should have saved for a rainy day. Or an emergency fund, just like here on BH.
On BH people tend towards having so many months of living expenses held in a way they can use them if needed. It is part of the mantra.
I don’t know what the equivalent analogy of a stock buyback would be for an individual, but surely anything that lessens the chance you might be able to weather a personal crisis would be included.
So, first and foremost, a rainy day fund. For corporate America too. If they did that they might not be freaking out about the survival of their companies.
Seems nowadays that everyone operates on a razor margin, balancing themselves on a thin line between solvency and failure.
You're right of course. But during good times when you have competitors who operate with thinner margins than you, making greater returns than you, it's us shareholders (collectively) who demand better returns on our investment.
"In the long run, investing is not about markets at all. Investing is about enjoying the returns earned by businesses." - Jack Bogle
MotoTrojan
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Re: End of corporate stock buybacks??

Post by MotoTrojan »

index2max wrote: Wed Mar 18, 2020 8:37 am The problem is stock buybacks or repurchases is when executives or boards of directors are compensated based on targets such as earnings per share (EPS).

All else being equal if the number of shares on the secondary market decreases, the price of the stock increases and so does EPS by default.

So execs and directors of publicly traded companies can juice their compensation at the expense of the company and other shareholders who become bagholders...

It's a perverse system.
This makes sense for why dividends (another form of providing share-holder a payout) would not be demonized. Thank you.
lostdog
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Re: End of corporate stock buybacks??

Post by lostdog »

Are buybacks more tax efficient for the shareholder?

Good for us.

Are buybacks causing the companies to hold less cash?

Can they still do buybacks but manage their cash better?

Sounds like a cash management issue rather than a buyback issue.

The government can can say you need to hold this much cash before you can do buybacks.
tjtv
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Re: End of corporate stock buybacks??

Post by tjtv »

The big issue that people complain about regarding buybacks is that executive compensation is heavily based around the stock price, and buybacks tend to pump up the stock price. However, issuing dividends lowers the stock price. If companies are buying back the same percentage of stock that they are paying as a dividend percentage, then it's all neutral to the executive's compensation. If they are buying back a higher percentage of the stock than they issue in dividend yield then that greatly favors the executives. Vice-versa if they're not doing much in the way of stock buybacks compared to what they pay in dividends.

In an ideal world executive pay would more closely mimic the company's market cap, since that can't really be gamed by doing stock buybacks or paying dividends. Stock price is much easier to game.
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Re: End of corporate stock buybacks??

Post by Dottie57 »

index2max wrote: Wed Mar 18, 2020 8:37 am The problem is stock buybacks or repurchases is when executives or boards of directors are compensated based on targets such as earnings per share (EPS).

All else being equal if the number of shares on the secondary market decreases, the price of the stock increases and so does EPS by default.

So execs and directors of publicly traded companies can juice their compensation at the expense of the company and other shareholders who become bagholders...

It's a perverse system.
+1
ExPatKiwi
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Re: End of corporate stock buybacks??

Post by ExPatKiwi »

The best way to stop stock buybacks is to increase the cost of capital (debt) that has been funding it. Fed's QE and ZIRP the major issue.
Counting down to retirement on December 31st, 2024
beth65
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Re: End of corporate stock buybacks??

Post by beth65 »

mary1969 wrote: Wed Mar 18, 2020 8:03 pm I'm 54 and semi retired. I took a job with Fedex for health insurance. Started there in 2016. The tax cuts were supposed to trickle to the employees but it did not. I could be wrong but I believe FDX executed at least $2 bln in buys backs since 2018. Stock was around $260 and now at $100. Tariff's and Amazon were the excuse for not compensating employees, but it did not stop buybacks.

I don't work at Fedex for the money. Really just there for the insurance and to get out of the house. A lot of folks are pay-check to pay-check.
I'm at UPS, and the same thing happened. They made their numbers for the street (after reducing estimates along the way, of course), but they screwed the employees over on the bonus payout (lowest payout in 40 years despite an "amazing" economy), which also negatively impacts pensions of those retiring in the next 5 years (and that is a LOT of people at an older organization). The board and management committee pocketed most of the tax cuts with buybacks and lined their pockets, and most employees did not see any significant raises, promotions or pay increases. Benefits keep getting trimmed away/costing more OOP, and there was not nearly enough investment in infrastructure.
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