Comments on: Stock buybacks and dividend equivalency - Securities fraud

By: Stock Fraud Attorney

Stock Fraud Attorney — Thu, 09 Sep 2010 09:07:38 +0000

These buy backs are just a way of cashing out one or two of the good old boys at the table. Some companies had a billion dollar buy and the stock price didn’t even move leading the person to think that they don’t exactly purchase shares on the open market. Management doesn’t like paying dividends, because a dividend cut gives them bad publicity in the case that the business is performing poorly.

Thanks for sharing…..

Securities Fraud Attorney

By: John Schroy

John Schroy — Sat, 21 Apr 2007 16:36:53 +0000

I would think that it's not what one calls a 'stock buyback' but what effect it has on general shareholders. If the amount involved is trivial, then the practice would not seem to make much difference, whatever it is called. If the amount is substantial, compared to the capitalization of the company (or if it grows to be substantial through repetition), then the question is exactly what are the details of the distribution of cash.

For example, if a stock buyback or amortization is accomplished by distribution of cash pro-rata to all shareholders, then it is essentially the same as a dividend (although perhaps not for tax purposes) and all shareholders will be dealt with equitably. However, if the distribution is not pro-rata, then company assets are being distributed to some shareholders and not to others.

For flow of funds analysis, the point is not to criticize individual companies, but rather to examine the effect of behavior on the entire market, when a practice is widespread. In the case of buybacks, in the US market at least, I think the effect is essentially to boost the price of stocks in the short run (which benefits speculators and free option-holders), while diverting funds from long-term investors who do not sell into the buyback, or if they do, not on as favorable terms as others.

The level of buybacks in the US market has now reached a point that it is the major force supporting prices, which, of course, makes everybody feel happy, even if they don't sell their holdings and benefit from the price increase. As usually happens, the bad practices of the US market are copied in other markets throughout the world.

By: Falco

Falco — Sat, 21 Apr 2007 09:31:22 +0000

Hi,

Do you think the same if buyback´s shares are amortized?

In that case, it would be seen as dividend reinvestment and stockholders that not sell will be "more owners".

I catch the general point. My country is a narrow stock market compared to the US. But in recent times, we are seeing more operations of this kind.

Recently two company´s presidents have bought LEAPs of their own actions. One of then has already announced to keep on buybacks, and a net worth reduction (shares amortization). Crystal clear.

Excellent site!!!!! Many, many thanks,