Buybacks at $46B a Month Dwarf Everything in U.S. Market (2015)
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Re: Buybacks at $46B a Month Dwarf Everything in U.S. Market (2015)
#2Apple buys back a large amount of stock because that is the only way they can really get any return out of their stock (http://247wallst.com/technology-3/2016/03/01/why-apple-may-s...).
Unfortunately due to the law of large numbers, for them to grow at even a 15-20%, would require billions and billions of dollars in revenue increases. Seems like the most prudent course of action for them and their investors. Albeit you could also argue that using that cash to buy other companies might be worthwhile.
Re: Buybacks at $46B a Month Dwarf Everything in U.S. Market (2015)
#3For everyone wondering why the large cash balances on company books, this is why. But it also means that if companies are spending their 'rainy day' money that it's truly raining. The theory that the tech cycle is hitting its 8-year downturn cycle just got more substantiated.
Re: Buybacks at $46B a Month Dwarf Everything in U.S. Market (2015)
#4The article is from March 2015, FYI...
Re: Buybacks at $46B a Month Dwarf Everything in U.S. Market (2015)
#5For everyone wondering why the large cash balances on company books, this is why. But it also means that if companies are spending their 'rainy day' money that it's truly raining. The theory that the tech cycle is hitting its 8-year downturn cycle just got more substantiated.
Does it really count as "spending rainy-day money" if they're spending their cash reserves on buybacks? It seems more to me like they just have literally nowhere else to spend the money other than bringing all those dividends back into the company.
Re: Buybacks at $46B a Month Dwarf Everything in U.S. Market (2015)
#6Remember, in a perfectly liquid market without taxes, a company which executes a share buyback will have no change in its stock price, since the shared redeemed will be exactly balanced by a reduction in the value of the company; and this is also exactly equivalent to distributing profits in the form of a dividend.
On the other hand, when the rate of taxation on capital gains is lower than the rate of taxation on corporate dividends, it's advantageous to pay out surplus cash in the form of capital gains by executing a share buyback. This also provides a tax-planning benefit to shareholders: Everybody is forced to realize a dividend (and pay tax on it) but some shareholders will prefer to realize more or less capital gains in a given year.
In Canada we have rules which sometimes reclassify capital gains as "deemed dividends" to prevent this sort of maneuver. A far better solution would be to simply fix the tax system so that economically equivalent actions get taxed identically in the first place.
Re: Buybacks at $46B a Month Dwarf Everything in U.S. Market (2015)
#7This is a consequence of tax law and greed. There are three ways a company can pay for their capital - dividends, interest, and stock buybacks. The first is taxable. Only the last makes options given to executives valuable.
The US should tax buybacks and interest as it does dividends. That would put a stop to this.
Re: Buybacks at $46B a Month Dwarf Everything in U.S. Market (2015)
#8[deleted]
Re: Buybacks at $46B a Month Dwarf Everything in U.S. Market (2015)
#9The article is from March 2015, FYI...
Good catch. We added that above.
Re: Buybacks at $46B a Month Dwarf Everything in U.S. Market (2015)
#10Buybacks are a terrible waste of shareholders' money and is akin to putting lipstick on a pig. The only reason why IBM has had relatively decent numbers is because of the financial engineering associated with buybacks. Unfortunately, it all blew up with the current CEO who has to deal with the fact that revenues are dropping like a rock and can't be out-engineered anymore.