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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)

#141

Post by JDDunn9 »

tomp wrote: post #128
JDDunn9 wrote: post #123

Earlier quoted context omitted.

The market cap already reflects the value of all future earnings discounted to the present. The timing of dividend payments is irrelevant.

Either you're stupid, or there's a misunderstanding. Probably the latter. Let me try again. Assume that δ is the discount factor (δ = 1 / (1 + r)), P is price, and D_i is the dividend in year i. Before dividend: P = D_0 + δ D_1 + δ^2 D_2 + δ^3 D_3 + ... After dividend: P = δ D_1 + δ^2 D_2 + δ^3 D_3 + ...

When calculating the value of an annuity, all that matters is your number of periods, the amount, and your discount rate. This is why an annuity appreciation chart over time is continuous.

Re: Buybacks at $46B a Month Dwarf Everything in U.S. Market (2015)

#142

Post by harperlee »

tomp wrote: post #128
JDDunn9 wrote: post #123

Earlier quoted context omitted.

The market cap already reflects the value of all future earnings discounted to the present. The timing of dividend payments is irrelevant.

Either you're stupid, or there's a misunderstanding. Probably the latter. Let me try again. Assume that δ is the discount factor (δ = 1 / (1 + r)), P is price, and D_i is the dividend in year i. Before dividend: P = D_0 + δ D_1 + δ^2 D_2 + δ^3 D_3 + ... After dividend: P = δ D_1 + δ^2 D_2 + δ^3 D_3 + ...

This comment would be better without the gratuitous namecalling.

Re: Buybacks at $46B a Month Dwarf Everything in U.S. Market (2015)

#143

Post by JDDunn9 »

phyalow wrote: post #131
JDDunn9 wrote: post #126

Earlier quoted context omitted.

The market cap already reflects the value of all future earnings discounted to the present. The timing of dividend payments is irrelevant. If your argument was true, that a stock's price predictably fell the day after the dividend, investors could simply short the stock and get a guaranteed profit, which is not possible in an efficient market.

> The timing of dividend payments is irrelevant. False. If I receive cash today I can reinvest it and start earning a return. If I receive cash in a month I have forgone one months reinvestment return. > investors could simply short the stock and get a guaranteed profit, which is not possible in an efficient market. False. Well if you are short a stock over ex dividend date then you need to pay the owner of the stock…

The net present value takes into account the difference between payment today and payment tomorrow.

The ex-dividend rate is an implementation flaw that makes the stock price discontinuous at the dividend date. If dividends were pro-rata it would not be.

I never said markets were perfectly efficient.

You didn't think through your answer very hard did you? ;)

Re: Buybacks at $46B a Month Dwarf Everything in U.S. Market (2015)

#144

Post by JDDunn9 »

tomp wrote: post #136
JDDunn9 wrote: post #134

Earlier quoted context omitted.

The adjusted price reference you made is axiomatic. Adjusted prices simply subtract the dividend. It does not reflect market value. You'll notice the open on the day after the dividend, the stock actually went up $0.40 from the closing price. When shorting, you only pass the dividends through. The company sends you the dividend, you send it to the original owner, you could still profit from the drop in share price.

Well, the stock price might have changed because of some news or general market sentiment. I guess I could have found a better example, a stock where the dividend is much bigger (percentage-wise), the effect would be much clearer then. Edit: e.g. EWM (an ETF, I think) https://uk.finance.yahoo.com/q/hp?s=EWM&d=3&e=4&f=2016&g=d&a... No, shorting doesn't work that way, obviously. "Shorting" means you sell he stock, so t…

The ex-dividend date is an implementation flaw that makes the stock price discontinuous at the dividend date (I initially misunderstood this). However, in theory, a pro-rata dividend would be continuous.

Re: Buybacks at $46B a Month Dwarf Everything in U.S. Market (2015)

#145

Post by phamilton »

JDDunn9 wrote: post #138
phamilton wrote: post #125

Earlier quoted context omitted.

Profits being flat isn't quite right. Profits being zero is the case where a company issuing a dividend would eventually become worthless.

This is a strawman argument. Cash is not required to be re-invested to maintain current profitability.

That's not the argument I'm making. I'm not disagreeing with you.

The point I'm making, which I admit is an obvious one, is that without profits a dividend will erode a company's value. Simple flow of money. Unless there's a surplus flow of money in, you can't have an outward flow. Therefore, the effect of a dividend on a company's market cap depends on how much profit they have in comparison.

Re: Buybacks at $46B a Month Dwarf Everything in U.S. Market (2015)

#146

Post by phamilton »

rsp1984 wrote: post #140
phamilton wrote: post #130

Earlier quoted context omitted.

Assume an investor takes all dividends and buys more shares. Example: Assume 10M shares at $1 each. With a 10 cent dividend ($1M total), an investor with 100k shares (1% of the company) receives $10k. The market cap drops to $9M (since cash holdings decreased) and the stock price drops to $0.90. They then buy ~11k (10k/.9) shares and have 111k shares, or 1.1%. Now instead assume the company does a buyback of 1M share…

Well but that just confirms my whole point. In a buyback the company invests its cash into stock instead of distributing it as dividend. It therefore makes an investment decision for the investor, who never gets to see any cash. The whole point of giving out dividends as a company is saying to an investor "here, you can invest this cash better than we can". If you're not giving out dividends you think you have better…

Yep. Except for the fact that without taxes the investor can just sell the stock if they disagree with the investments the company is making, resulting in the same cash return as a dividend.

In my example with the buyback, if the investor sold 0.11% of the company after the buyback, the result would look just like what would happen if they did not reinvest the dividend. 1% of the company and $10k cash.

Re: Buybacks at $46B a Month Dwarf Everything in U.S. Market (2015)

#147

Post by cylinder »

virmundi wrote: post #29
xenadu02 wrote: post #25

So many companies with so much profit they literally can't find any way to invest it to generate return. It might make you wonder why wages are stagnant or what the argument for outsourcing to lower labor costs is really about, if you were the sort of person to bother wondering about such things.

I no longer wonder about such things. The simple fact of the matter is that the system is designed to work against wage earners. It focuses on the benefit of our corporate overlords. For example, I use to work for a company as a wage earner. I left, moving my 401k into a self-directed IRA. Since the market has been bad lately, I remained in cash. I want to put that money somewhere else: property. I would love to buy…

We are supposed to have collective bargaining; most don't. It's almost a foreign concept to any office worker in the US. Elsewhere, white collar unions (or at least enterprise agreements) are the norm.

Re: Buybacks at $46B a Month Dwarf Everything in U.S. Market (2015)

#148

Post by rsp1984 »

phamilton wrote: post #146
rsp1984 wrote: post #140

Earlier quoted context omitted.

Well but that just confirms my whole point. In a buyback the company invests its cash into stock instead of distributing it as dividend. It therefore makes an investment decision for the investor, who never gets to see any cash. The whole point of giving out dividends as a company is saying to an investor "here, you can invest this cash better than we can". If you're not giving out dividends you think you have better…

Yep. Except for the fact that without taxes the investor can just sell the stock if they disagree with the investments the company is making, resulting in the same cash return as a dividend. In my example with the buyback, if the investor sold 0.11% of the company after the buyback, the result would look just like what would happen if they did not reinvest the dividend. 1% of the company and $10k cash.

Ok, but it's not the buy-back that increases the per-share value for the selling investor, it's the fact that the company has generated positive Free Cash Flow that it is free to invest.

Re: Buybacks at $46B a Month Dwarf Everything in U.S. Market (2015)

#149

Post by tomp »

JDDunn9 wrote: post #144
tomp wrote: post #136

Earlier quoted context omitted.

Well, the stock price might have changed because of some news or general market sentiment. I guess I could have found a better example, a stock where the dividend is much bigger (percentage-wise), the effect would be much clearer then. Edit: e.g. EWM (an ETF, I think) https://uk.finance.yahoo.com/q/hp?s=EWM&d=3&e=4&f=2016&g=d&a... No, shorting doesn't work that way, obviously. "Shorting" means you sell he stock, so t…

The ex-dividend date is an implementation flaw that makes the stock price discontinuous at the dividend date (I initially misunderstood this). However, in theory, a pro-rata dividend would be continuous.

Yes. That's what happens with bonds (clean vs dirty price). It's more complicated with equities because the size of the payout isn't known in advance.

Re: Buybacks at $46B a Month Dwarf Everything in U.S. Market (2015)

#150

Post by mac01021 »

slv77 wrote: post #117
mrfusion wrote: post #93

Guys what happens if a company buys back all its shares? I've always wondered that.

The last outstanding share of a company is worth the value of the entire company. Selling the last share is typically a liquidation event where all assets are sold to a third party and the cash is distributed to the remaining shareholder. At that point the comany has no value (all its assets having been liquidated) and is shut down. Lets assume that the last remaining shareholder of Apple made the choice to sell his…

Why does the company need shareholders to operate? Does our legal framework prevent a corporation from owning itself and appointing its own board and so forth?
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