Global giant companies have started a massive war of share buybacks. Since the beginning of 2021,global giant companies like Facebook, Apple, Google, Microsoft, and MacDonald launched share buyback programs that breaks the record.
What is a stock buyback? Is it good or bad? Let's take a look at mooers' amazing views.
A Boon or a Bane?
@Syuee said:
As with many things in investing, the answer isn't well-defined. If the company genuinely has cash to spare, and its shares are arguably undervalued, then a buyback can be a good way to generate benefits for shareholders.
But if, its shares are expensive, it's worth asking why the company isn't choosing to pay a special dividend to its shareholders instead … or hanging on to the cash for a rainy day?
Generally, re-distributing wealth has been viewed positively by investors. This can come in the form of dividends, retained earnings and the popular buyback strategy.
Pos of stock buybacks for investors
- Boost in share prices
- Rising dividends
- Better earnings per share
- Less excess cash
- Positive psychology
Cons on stock buybacks for investors
- Poor predictions
- Sinking dividends
- Poor use of capital
- Management self-interest
- Cover for stock handouts
Click to see >>
Mooers believe stock buybacks are positive signs
@Johannpee said:
Short positives
Buying back shares is usually meant to affirm the market on the company beliefs to its future and influences the retail behaviour to follow suit. Personally I see it as a positive to a favorable outcome. A short term one. Having said, take caution to follow suit when a company's share price has made a sudden dip. Also, C-suite buying back shares may constitute a sudden pump and dump where you won't want to be trapping your money with their shares. Click to see>>
The “plus” points
@HuatEver is in favour of stock buyback or stock repurchase, because it is an effective utilisation of a company's excess cash flow, a decrease in the number of shares lying around in the market, and a positive reward for the shareholders who will be allowed to purchase the company's stocks at a reasonable prices. Click to see>>
A great example
Among the companies participating in share buyback, @HopeAlways most bullish on $Apple(AAPL.US)$, one of Warren Buffett's all time favourite stocks. Its strong brand and innovative design expertise has allowed Apple to build one of the most loyal customer bases in the world and generate earnings that beat its competitors in the mobile computing market. Not only that , Apple has used its dominant position in mobile to build a largely profitable software ecosystem. Even better, Apple pays consistently higher dividend and shareholders can anticipate a huge payout growth in the long term. Click to see>>
There are also voices that a buyback is not necessarily good for investors
As @NANA123 said:
The world of capital is very complicated
First of all, it depends on the strength of the repurchase. The price depends on the game between buyers and sellers. The more you buy in, the easier for rising. On the contrary, with a daily turnover of more than one billion, but millions of buyback for a stock, which has no effect on the trend of the stock price.
Sometimes, the purpose of buyback is not simple. Major shareholders want to reduce their holdings, but the stock price has fallen sharply. At that time, it’s not worthwhile to reduce their holdings. Therefore, it throws out a buyback plan to stabilize the stock price.
In fact, there are many reasons that affect the company's stock price. Even if the price is undervalued, it’s difficult to repair it by repurchase. For the market, buyback conveys good news and gives investors confidence. But it can only be used as a bonus item rather than trading standards. Click to see >>
Buybacks vs Split shares
Last but not least, @Ermmmmm raised a very interesting question:
Companies also like to split shares. So which is greater at work here (buybacks vs split shares)? Click to see >>
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