Stock Buybacks - Good or Bad? Are Share Repurchases a Bad Thing for Investors? Stock Buyback Basics
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- เผยแพร่เมื่อ 8 ส.ค. 2019
- Companies often buy their shares back from the open market. In this video, we look at why companies like Apple and Walmart purchase outstanding shares of their own stock. In recent years we've seen an increase in stock buybacks (also known as share repurchases) and the question we try to answer in this video is, are buybacks a good thing for investors?
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What do you think of stock buybacks? Are they a good thing for investors?
No. Dividends are better.
I am a bigger fan of companies using excess cash to pay down debt and/or pay dividends. Stock buyback is financial engineering that rewards executives in the short run at the cost of a company's longevity.
outside of a few very rare cases, I couldn't agree more.
That's what apple is doing.
I totally agree
Thanks for going over this and breaking it down Jimmy! 👍
Your channel is better than my old college lectures.
😁Thanks 👍👍👍
You explained this well. Thanks
Hey Jimmy you are pretty cool. I really enjoy your videos. I have a suspicion that recent increases in buybacks are a sign of two problems: 1) a decline in innovation, else reinvest. 2) a pessimistic view on future earnings, thus a hedge against eps decline, while maintaining shareholder support.
Thnx for the great explanation!
Thanks Jimmy, I really learned a lot!
Loved this video! great job.
I've always preferred giving $ back in the form of dividends, rather than buybacks. Thanks for the vid!
gen.x dividend.investor Agreed, but once off windfalls (outsized profits) or a sudden decrease in shareprice is better served via a buyback than with a dividend. Dividends are not to be cut, they should be covered and predictable, while buybacks can be stopped if the conditions change materially.
Love the content Jimmy! I’ve never looked at buybacks with this kind of analysis before but I definitely will now!
Very accurate. Stock Buybacks excellent is if the company doesn't have outstanding projects to generate more cash. In the future, less dividends will need to be paid, especially if profits drop.
Thx Jimmy
Also worth mentioning that buybacks take shares out of the market which can help reduce volatility, which is another benefit for shareholders.
For the company, buybacks today reduce the dividend payment burden tomorrow (as there are less shares outstanding in the market), which gives the company more cash flow to reinvest in the business (or do more buybacks...)
Sprinklesofjoy or increase the dividend of the shares outstanding in coming years!
Great vid!
Can you make a video on how different ratios affect the price of a stock? (expending on some of the ration you already mentioned in this video - eg debt to equity, earning yield etc)
Thanks
Good explanation! School case of bad buyback: BBBY in 2014 when the management decided to borrow $1.5B to perform buybacks right when the stock price was sky high. The CEO has since been fired, hopefully this company will now be better managed.
Great explanation however when the market drops the EPS may drop as well because of economic circumstances. Thanks a lot Jimmy!
New sub here ! Great video ❤️🔥
Repurchases r great especially if used strategically to buy back beaten down stock. But that is rare. FB last yr was a good example
I prefer buybacks over dividend but i think in 99% of the cases buybacks should come from FCF and not from issuing debt. What i hate about dividends is when a company needs excess capital for whatever reason and has to suspend dividend increases (or cut) the stock is hammered. Excess debt always makes me nervous.
Agreed!
I don't know how stock buybacks intrinsically increases the stock price. Decreasing shares outstanding increases EPS, assuming earrings didn't change. An increase in EPS, results in a decrease in P/E. Rearranging the P/E formula, price per share is equal to P/E times EPS. It seems to me that the P/E ratio decreases while the EPS increases proportionally equal to the decrease of the P/E.
thanks спасибо!
Reinvesting the cash and making acquisitions will probably reward the shareholders more than dividends and buybacks
I personally feel that SBBs are a waste of money for any company. It artificially props the stock price and allows for semi-legal insider trading for those in the know of when a SBB is going to occur. A company should always be first looking to grow their company first before giving a dividend or a SSB. A SBB should be a last resort. The thought of leveraging your company to perform a SBB is fairly repugnant in my mind. The ONLY time it is okay to leverage your company is for something that will increase your companies revenue over the long term.
It is important to consider if my memories is correct in the us when you can deduce of your taxe 38% of the value of the buyback
If the buyback is financed by debt
Am I correct with this? A company that has 100 shares less after buybacks has also a cash opportunity because they save future dividend payments for these 100 shares as well. Thanks for the content.
Very true. shares from a buyback don't get dividends, so yes in theory the company could save some cash that way
Great video ! Thanks for this clear explanation. Share buybacks seem like financial engineering to me.
I think they can certainly be used that way
I find everyone's comments about buybacks to be interesting. I like the idea of buybacks more than dividends because it helps weed out short-term investors. This is basically legal insider trading, right? The company knows when they're doing well and when they're doing poorly. If they're doing well but the stock price hasn't rewarded the investor, it seems to me that they have an opportunity to step in and buy the fence-sitters out, which will help the long-term investor. Hopefully, the board of directors would then be free to make decisions that will benefit the company in the long run.
It helps that I'm not looking for an income stream when I buy stocks; I'm in it for the long-term, at the moment.
This topic had me re-think buying stock on margin. If you're making regular contributions to your portfolio and you have the ability to borrow on margin, you could use the same math to decide whether it makes sense to pay the broker back or to buy more stock, right? Would you consider creating a video on buying on margin, please?
That's a good video idea, and yes at first glance I think this math could also work in that context. But I'll test it out for the video I do
Jimmy thanks for the video and congratulations on reaching 25K subscribers. My thoughts are that if a company has excess cash and it doesn't have a better alternative to investing it, then a stock buyback is an appropriate way to use that money. However if the company is borrowing the money to fund the buyback then I believe this is stock price manipulation and should not be allowed. I wonder how much of the $940 billion of stock buybacks in 2019 will be financed by debt?
I agree 100%. I'll dig a bit and see if I can find how much is financed by debt. I'm curious as well
And thanks for the support!!!!! 👍🙂🙂🙂
Defonitely only ok with massive companies, in my opinion anyway!
👍
I haven't experienced a buy back but I know I got hit with a 3 to 1 reverse split and I still think I was cheated
Lol, understandable, it's tricky to watch the stock price get cut like that. But even though a stock split doesn't affect the value of your position at all, often times, the lower price can be attractive to some investors, so in theory it could help your stock in the long run... Hopefully 🙂
@@LearntoInvest well a reverse is opposite the take away shares and raise the price of each share but depending in the number of shares you hold you may loose shares
Fair point, for some reason the first time I read your comment I skipped the very important word, reverse. Frankly the reasoning behind a reverse split has always been very important in my mind. I try to ask myself questions like, how much was the stock when the did the reverse split. Often times of a stock price gets below a dollar, there is fear of a delisting. In many places, stocks under 5 dollars cant be bought on leverage, so some companies may do it then. Or are they just managing the price for some reason? I don't mind splits as long as they are well explained by the company. Sorry for the mis read before
@@LearntoInvest no problem. Best believe once the stock went up to a profit I sold out of my position
Really??
I think it is safe to say that the workers would prefer they reinvest the cash into the company, e.g., wage increases. After all, t hey accumulated all that cash by underpaying the employees.
Except for some rare cases raising wages isn't an investment at all and only brings down its profitability. And it's bold to assume that the company with profits always underpays employees
this guy is about to bust
XD