Buybacks only exist because companies dilute shareholder equities due to compensation

[noob_trad3r]

http://www.cnbc.com/id/47157340

The board of directors of International Business Machines raised its dividend by 13 percent and approved an additional $7 billion stock buyback plan.

Instead of that 7 billion buyback, pay that out instead as cash as dividends?

 

[rmorse]

Stock buyback are done to increase Earning per share on shares outstanding, when the company believes their share price is under valued. Paying a dividend does not accomplish that.

 

[noob_trad3r]

Quote from rmorse:

Stock buyback are done to increase Earning per share on shares outstanding, when the company believes their share price is under valued. Paying a dividend does not accomplish that.

Looking over historical documents I have noticed the following.

#1 Buybacks seem to occur when stock is priced high.
#2 Buybacks primarily just seem to offset the extensive dilution due to executive stock options.

So to counteract EPS from dropping due to excessive backdoor compensation of insiders on the backs of regular common shareholders, they do the "buybacks". As it was a big great reward.

It seems dividends is cash in hand, you can buy more stock in the company or deploy it elsewhere. And from looking over things, dividends are harder to cheat and reward long term holders much more.

i.e. if you bought PG in 1970, you can potentially just live off the dividends without selling stock or worrying about day to day stock price fluctuations.


I bet CSCO shareholders would have rather taking 1Billion in cash as dividends VS what the CEO did which was buy flip for 1 billion which was in essence burning 1 billion in a bonfire.

 

[rmorse]

Quote from noob_trad3r:

Looking over historical documents I have noticed the following.

#1 Buybacks seem to occur when stock is priced high.
#2 Buybacks primarily just seem to offset the extensive dilution due to executive stock options.

So to counteract EPS from dropping due to excessive backdoor compensation of insiders on the backs of regular common shareholders, they do the "buybacks". As it was a big great reward.

It seems dividends is cash in hand, you can buy more stock in the company or deploy it elsewhere. And from looking over things, dividends are harder to cheat and reward long term holders much more.

i.e. if you bought PG in 1970, you can potentially just live off the dividends without selling stock or worrying about day to day stock price fluctuations.


I bet CSCO shareholders would have rather taking 1Billion in cash as dividends VS what the CEO did which was buy flip for 1 billion which was in essence burning 1 billion in a bonfire.

I was not giving you my opinion has to what is better. I was telling you the rational that board members use to buy back stock, rather than other choices. Members of the board tend to do what they feel is best for them or their largest share holders, rather than small share holders.

 

[AAAintheBeltway]

Quote from rmorse:

I was not giving you my opinion has to what is better. I was telling you the rational that board members use to buy back stock, rather than other choices. Members of the board tend to do what they feel is best for them or their largest share holders, rather than small share holders.

The point is that if they didn't do these massive buybacks, no matter the price, they would be diluting themselves with options grants. It's just a way of disguising the true cost of excessive executive compensation. Pass the cost on to shareholders through options grants, then waste shareholders' money buying back shares to avoid dilution.