Share Repurchases and the Associated Risks

Find out about the risks associated with share repurchases

February 2022

Share Repurchases and the Associated Risks – In recent years, share repurchases (stock buybacks) have skyrocketed as companies prioritize spending their funds on stock buyback programs instead of investing for the future. These share repurchases have become a hot topic, and many lawmakers and politicians are advising against the negative impact of these stock buyback programs. The last decade has seen some of the biggest corporations in the world involve in share repurchases.

Share Repurchases and the Associated Risks

These include the likes of Apple, which leads the way with over $10 billion spent in stock buybacks. Companies are spending their revenue on share buybacks to drive up their stock price, but they are also doing so by borrowing money from financial institutions. This has caused great concern among lawmakers who believe that adopting such as approach might be counter-intuitive in the long run.

It places tremendous pressure on corporations to ensure that they maximize their share repurchases. If they are unable to repay the loans they have taken to buy back their stock, it could result in an economic depression, the likes of which haven’t been seen since 2007. While it may seem like a drastic statement, there is some truth involved because companies interested in only share repurchases are missing the bigger picture.

No Scope for the Future of Share Repurchases / Stock Buybacks

Instead of investing in their resources and training their employees, they spend money on their stocks to inflate their value. That is a short-term goal for companies and will not help them in the longer run. This approach will come back to haunt them in the end, because most companies aren’t equipped to deal with the challenges they will face in the market.

If an organization wants to ensure that its prospects will not be compromised, it must start investing money in the company. The argument by critics today is that companies are using their money to inflate their share prices and reward insiders and investors. They should be worried about investing in new products or hiring new employees instead.

Share Repurchases and the Associated Risks in the Current Market

The current market is strange because as the world comes to grips with the pandemic, the stock market is down, and every company’s share prices are suffering as a result. That has forced several corporations to dip into their coffers and invest in stock buyback programs. The strategy is not sustainable, and even though it presents results in the short-term, there is also the risk that it would lead to the kind of financial crisis that the world witnessed in 2008.

There have been calls in the marketplace to develop new laws and regulations that stop companies from repurchasing their shares. What action lawmakers take to put a hold on share repurchases and reduce the risks involved in stock buybacks remains to be seen.

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About the Author & How YOU Can Profit:  This article is the copyrighted product of the team at BuybackAnalytics.com  .

Buyback Analytics is a Top Tier Investing Platform to help investors find, analyze, and profit from investing opportunities not found through traditional investment tools. We specialize in this simple concept:  Follow the trades of Insiders – CONSISTENTLY SUCCESSFUL, PROFITABLE Traders, Investors, and Institutions:

LEGAL Insider Trading / Inside Trades (CEOs, CFOs, Corporation’s Accountants & Attorneys, Politicians, etc.)
Stock Buybacks / Share Repurchases by Public Corporations (ie. Apple, Tesla, Netflix, Facebook, Microsoft, etc.)
Market Moving Institutions (Examples: Market Makers, Investment Banks, Stock Brokerages, Hedge Funds, etc.)

Use of Our articles: You are welcome to benefit from lots of FREE articles that you can read and learn from on our website blog.  You are also welcome to share or post this information as helpful content to your website or blog audience as long as the article, and this entire byline are left intact, word for word.  If you would like us to provide you with more, or bulk content for your blog or website to educate your audience on basic to expert financial and investor information & techniques, feel free to contact us at info@buybackanalytics.com .

Stock Buybacks: A Mountain or a Molehill?

Find out what is the big deal with stock buybacks and why companies prefer them

February 2022

Stock Buybacks: A Mountain or a Molehill? – There has been a lot said and written about stock buybacks (share repurchases) in recent times, especially after the record-breaking numbers that it put up in 2018. The people who support stock buybacks claim that it ensures the company uses its capital prudently and effectively. However, the opponents of stock buybacks claim that it is another example of short-term thinking by corporations.

Stock Buybacks: A Mountain or a Molehill?

Nevertheless, the figures don’t lie, and a record $807 billion was spent on stock buybacks in 2018, which was an increase of nearly 56% from the previous year. It captured the imagination of everyone, including investors, political figures, and the media. However, not everyone reported on it favorably, and even though it worked out for some investors, others lost money due to stock buyback programs.

So, the question is are stock buybacks a blessing or a curse for the economy? On the one hand, they help a company drive its share value and ensure that they reward its investors. However, it also means that the company has fewer funds to invest in newer products and hiring employees. How does a company achieve growth if it is spending most of its revenue on stock buybacks? There is no simple answer to that question because each company has different prerogatives and goals to achieve.

Making Sense of Stock Buybacks for Companies

The one thing that most people agree upon is that stock buybacks are not a big issue for companies who have the funds to spend on repurchasing their shares. The problem only arises when a company borrows funds from financial institutions and then uses them on stock buyback programs. The critics of stock buybacks claim that this short-term thinking by corporations will hurt the economy, as there will be less focus placed on launching new products in the market.

Are Stock Buybacks Good for the Economy?

Stock Buybacks Good or Bad? They definitely have a ripple effect on the economy, which will slowly stagnate as corporations accumulate debt to finance their stock repurchases. There is no denying that buybacks could be a major threat to the economy. Still, stock buyback supporters claim that the problem is being inflated by political figures painting an apocalyptic picture to gain support.

There is still debate surrounding the real value of stock buybacks, and whether the supporters or critics are right remains to be seen. Currently, investors and corporations are reaping the benefits of stock buybacks, and the recent trend is set to continue well into the 21st century. What the future holds for stock buybacks is anyone’s guess right now.

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About the Author & How YOU Can Profit:  This article is the copyrighted product of the team at BuybackAnalytics.com  .

Buyback Analytics is a Top Tier Investing Platform to help investors find, analyze, and profit from investing opportunities not found through traditional investment tools. We specialize in this simple concept:  Follow the trades of Insiders – CONSISTENTLY PROFITABLE Traders, Investors, and Institutions:

LEGAL Insider Trading / Inside Trades (CEOs, CFOs, Corporation’s Accountants & Attorneys, Politicians, etc.)
Stock Buybacks / Share Repurchases by Public Corporations (ie. Apple, Tesla, Netflix, Meta [aka Facebook], Microsoft, etc.)
Market Moving Institutions (Examples: Market Makers, Investment Banks, Stock Brokerages, Hedge Funds, etc.)

Use of Our articles: You are welcome to benefit from lots of FREE articles that you can read and learn from on our website blog.  You are also welcome to share or post this information as helpful content to your website or blog audience as long as the article, and this entire byline are left intact, word for word.  If you would like us to provide you with more, or bulk content for your blog or website to educate your audience on basic to expert financial and investor information & techniques, feel free to contact us at info@buybackanalytics.com .

Are Stock Buybacks a Good Thing or Not?

Find out whether stock buybacks are in your favor or not

February 2022

Are Stock Buybacks A Good Thing or Not? – When looking at the stock buyback figures, an investor can quickly recognize that the number of companies involved in this practice has increased. You don’t need to look at a business report to recognize that in 2021 the number of stock buybacks by companies has increased tenfold over the last decade. The reasons are simple, companies who have cash on hand realize that the best way to invest is to instigate a stock buyback program.

Are Stock Buybacks A Good Thing or Not for Companies?

Nowadays, more companies are interested in stock buybacks than investing in the future. Organizations want to improve their earnings per share and their stock value at the same time while affording their shareholders with maximum returns on their investment. However, there are also critics of stock buybacks who complain that companies inflate their stock values to profit.

There is some truth to those allegations as organizations that want to improve their quarterly earnings, and EPS numbers are looking towards stock buybacks. The question investors must ask themselves is whether the company’s motives are genuine, and should they invest in a company that holds frequent stock buybacks? The answer is double-edged because, on the one hand, stock buybacks increase stock value and earnings per share.

Are Stock Buybacks Good for Investors?

However, on the other hand, they don’t represent the complete picture to investors. A company may only look towards a stock buyback program because it wants to paint a good picture artificially. The company may also be looking to prevent a hostile takeover, so it is trying to buy back its shares. Even small organizations are now jumping on board the bandwagon, and this has caused a familiar debate to resurface, are stock buybacks a good thing or not?

Look Beneath the Surface of Stock Buybacks

The primary concern that investors have with stock buybacks is that an increasing number of companies are shifting away from investing in their future and are only after short-term gains. That is a dangerous path to follow for any organization, as sooner or later, it will come back to haunt them. Therefore, investors must look beneath the surface of buybacks and make up their minds regarding whether stock buybacks hold value for them or not.

Are Stock Buybacks A Good Thing or Not 2022 Buyback Analytics - BuyBack Analytics
Are Stock Buybacks A Good Thing or Not? – Buyback Analytics Provides the Data You Need to Answer the Question: Are Stock Buybacks Good or Bad?

Are Stock Buybacks Good or Bad?

Stock buybacks help reduce the number of shares in the market, creating a demand for such shares. That is one way of artificially increasing a company’s stock price, even if the company isn’t in a financially strong position. That presents a challenge for investors since they don’t see the complete picture and, therefore, can’t make a judgment call on whether to invest in that company’s stock.

Are Stock Buybacks A Good Thing or Not?

If you look at the current trend in the marketplace, you will find that almost every other company is involved in stock buybacks these days. The simple fact of the matter is that company’s want to reward their shareholders, and stock buybacks provide them with the best solution.

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About the Author:  This article is the copyrighted product of the team at BuyBackAnalytics.com  .

Buyback Analytics is a Top Tier Investing Platform to help investors find, analyze, and profit from investing opportunities not found through traditional investment tools. We specialize in this simple concept:  Follow the trades of Insiders – CONSISTENTLY SUCCESSFUL, PROFITABLE Traders, Investors, and Institutions:

LEGAL Insider Trading (CEOs, CFOs, Corporation’s Accountants & Attorneys, Politicians, etc.)
Stock Buybacks (Share Repurchases) of Public Corporations (ie. Apple, Tesla, Netflix, Meta (Facebook), Microsoft, etc.)
Market Moving Institutions (Examples: Market Makers, Investment Banks, Stock Brokerages, Hedge Funds, etc.)

Use of Our articles: You are welcome to benefit from lots of FREE articles that you can read and learn from on our website blog.  You are also welcome to share or post this information as helpful content to your website or blog audience as long as the article, and this entire byline are left intact, word for word.  If you would like us to provide you with more, or bulk content for your blog or website to educate your audience on basic to expert financial and investor information & techniques, feel free to contact us at info@buybackanalytics.com .

How Share Buybacks Can Affect Your Returns?

The best way to guarantee returns from share buybacks

March 2022

How Share Buybacks Can Affect Your Returns – As an investor, you are always on the lookout for stock with intrinsic value, which can propel your portfolio to the next level. That is where share buybacks are such a great asset as they allow you to figure out the company’s actual value.

How Share Buybacks Can Affect Your Returns

Most organizations engage in stock repurchases when they feel that their stock is undervalued in the market. That signals to investors that the organization’s prospects are about to change, and investing in that company’s stock will represent greater returns.

It’s not always easy to identify how share buybacks can affect your returns because a company could have different reasons for share buybacks. They could be looking at different ways to reward its shareholders and increase its stock price at the same time. To find value from share buybacks, you must look at the real reasons why the company decided to repurchase stock. That is easier said than done, and you must study the market conditions and the company’s history to identify if stock repurchase makes sense for them.

Finding Share Repurchase that Generates Returns

You are never guaranteed a return on your investment when you invest in stocks, which depends on market conditions and the overall performance of the stock over a period. That means investors are always gambling on the future as they can never be 100% sure that a stock will perform as well as expected. That is where share buybacks can offer you deeper insight into stock performance. It roughly translates that a company believes its stock is undervalued.

That allows investors to purchase stocks at their cheapest value and then wait for the stock price to increase in the coming weeks and months. That will mean using techniques to study the number of share buybacks that a company has implemented over time and whether they use it to increase the stock price or reward their shareholders. Finding share repurchases that generate returns isn’t always easy, and you need to have a decent understanding of the stock market to profit from it.

The easiest way to do that is to search for companies that are experiencing a downturn in fortunes. Once you notice that a company is going through a rough patch and their stock price has fallen dramatically, you will know that they are ripe for picking. The company will instigate a stock buyback program to purchase its shares on the market. That will mean fewer shares in circulation, and the company can take advantage of a higher stock price.

Get the Result You Want from Share Buybacks

You should remember that share buybacks aren’t always a good indicator that you should invest in a company’s stock. There are instances where the program can backfire, and the company will be stuck holding on to shares that continue losing value. As an investor, it is up to you to figure out which shares are worth investing in and which share buybacks will offer you greater returns on your investment. That is the secret between a successful investor and an unsuccessful investor.

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About the Author & How YOU Can Profit:  This article is the copyrighted product of the team at BuybackAnalytics.com  .

Buyback Analytics is a Top Tier Investing Platform to help investors find, analyze, and profit from investing opportunities not found through traditional investment tools. We specialize in this simple concept:  Follow the trades of Insiders – CONSISTENTLY PROFITABLE Traders, Investors, and Institutions because THEY get Inside Information that YOU don’t:

LEGAL Insider Trading / Inside Traders (CEOs, CFOs, Corporation’s Accountants & Attorneys, Politicians, etc.)
Stock Buybacks (Share Repurchases) by Public Corporations (ie. Apple, Tesla, Netflix, Meta (Facebook), Microsoft, etc.)
Market Moving Institutions (Examples: Market Makers, Investment Banks, Stock Brokerages, Hedge Funds, etc.)

Use of Our Articles: You are welcome to benefit from lots of FREE articles that you can read and learn from on our website blog.  You are also welcome to share or post this information as helpful content to your website or blog audience as long as the article, and this entire byline are left intact, word for word.  If you would like us to provide you with more, or bulk content for your blog or website to educate your audience on basic to expert financial and investor information & techniques, feel free to contact us at info@buybackanalytics.com .

The Power of Share Repurchases

Find out the value of share repurchases for companies

UPDATED: March 2022

The Power of Share Repurchases – Purchasing stocks of companies in the middle of repurchasing their shares is one of the most effective selection strategies for stocks. There is no denying that share repurchases hold immense value for shareholders, the company, and investors looking for new shares in the market. The power of share repurchases transcends all boundaries of the stock market as it gives value to everyone involved in the process. The benefits of this process have made share repurchases attractive to many companies today.

The Power of Share Repurchases

Even though you should look how to invest in companies repurchasing their shares, there are times where you should avoid making a potentially harmful investment. You can never fully tell what the reasons behind the share repurchase had been for the company. You should consider several factors to evaluate whether an investment makes sense for you. That will allow you to develop a strategy that reaps results and rewards for you in the long run.

Why Companies Repurchase Shares?

Several reasons might prompt a company or firm to repurchase its shares in the market. The most obvious one would be that they think their shares are undervalued. However, there are other motives for companies to repurchase shares. These include the following:

* Buy Stock Cheaply

The duration in which the company stock price is down is considered the best time for repurchasing shares, which allows the company to drive the price up. It also sends investors the message that the company’s management thinks that the stock has been trading less than the intrinsic value in the marketplace. Hence, you should look for companies involved in stock buyback programs to drive their share price higher as an investor.

* Offset Dilution of Company Stock

Most companies reward their employees by allowing them to purchase shares instead of offering them dividend payments. Therefore, a share repurchase may be taking place to dilute the outstanding shares in the market and reward employees at the same time. It doesn’t mean that the stock is undervalued, but that the company is compensating its workforce.

* Manage or Boost Earnings Per Share (EPS)

Share repurchases are also used for managing and boosting the company’s earnings per share (EPS). This metric is valuable to corporate executives and investors since they are the ones who will reap the benefits when the company earnings are high. Companies used stock buyback programs to control the number of shares and drive the earnings per share value higher.

Conclusion – The Power of Share Repurchases

As an investor interested in buying stocks of companies involved in share repurchases, you need to look at the company’s real motives. There could be several reasons why a company has implemented a stock buyback program and understanding that will allow you to take advantage of the power of share repurchases.

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About the Author & How YOU Can Profit:  This article is the copyrighted product of the team at BuybackAnalytics.com  .

Buyback Analytics is a Top Tier Investing Platform to help investors find, analyze, and profit from investing opportunities not found through traditional investment tools. We specialize in this simple concept:  Follow the trades of Insiders – CONSISTENTLY PROFITABLE Traders, Investors, and Institutions because THEY get Inside Information that YOU don’t:

LEGAL Insider Trading / Inside Traders (CEOs, CFOs, Corporation’s Accountants & Attorneys, Politicians, etc.)
Stock Buybacks (Share Repurchases) by Public Corporations (ie. Apple, Tesla, Netflix, Meta (Facebook), Microsoft, etc.)
Market Moving Institutions (Examples: Market Makers, Investment Banks, Stock Brokerages, Hedge Funds, etc.)

Use of Our Articles: You are welcome to benefit from lots of FREE articles that you can read and learn from on our website blog.  You are also welcome to share or post this information as helpful content to your website or blog audience as long as the article, and this entire byline are left intact, word for word.  If you would like us to provide you with more, or bulk content for your blog or website to educate your audience on basic to expert financial and investor information & techniques, feel free to contact us at info@buybackanalytics.com .

3 Myths About How Share Buybacks Affect Stock Performance

The myths surrounding share buyback and their impact on the market

UPDATED: March 2022

3 Myths About How Share Buybacks Affect Stock Performance – For the past few years, companies in the United States have been on a share repurchase spree. This has raised concerns that the current high levels of the stock market are being driven by the appetite of businesses for their stocks. A share buyback-driven stock market may seem vulnerable, but companies have good reasons to buy back their shares. That’s because share buybacks offer companies a suitable way for returning profits to shareholders.

3 Myths About How Share Buybacks Affect Stock Performance

They also manage to boost share prices as demand outnumbers supply and reduces the total number of outstanding shares. The profits are then divided, which increases earnings per share (EPS) and makes the company more attractive for investors. Like other characteristics of stocks, share buybacks can be a major factor for exploiting the stock market to beat long-term returns.

Many investors have concerns about the high numbers of stock repurchases, which have resulted in a lot of misinformation being shared. We will look at 3 of the most concerning myths that have risen and debunk them here for you.

1. Myths About Share Buybacks – Share Buybacks ONLY Represent Short-Term Thinking

The critics of share buybacks claim that companies who buy back their stock are only thinking about short-term gains. That’s mainly down to the fact that they use the cash that’s meant for investment and innovation. Even though share buybacks are high, a recent report from JP Morgan has shown that at 2% market capitalization of the S&P 500, they meet the average for the past 15 years.

The volume of share buybacks has risen, but that’s mainly because companies are making more money, which has raised market capitalization and stock prices. Businesses have also been using cash repatriated after-tax to repurchase stock.

2. Myths About Share Buybacks – Companies Are Never Making the Best Use of Capital

The truth is, even though share prices of stock that are repurchased are higher than their average historically, they are still cheaper than the prices in the market. You won’t get better returns if you are buying cheaply because, after the financial crisis of 2008, companies who bought shares back at discounted prices were lagging behind those who repurchased at higher prices.

Valuations are set by the investors, and deciding to buy back stock is mainly down to the company thinking that their stock offers better value than any investment opportunity at that stage.

3. Myths About Share Buybacks – Companies Always Raise their Debt to Buy Back Shares

This is another myth that stems from the fact that companies borrow funds for share buybacks and capital spending. This trend is expected to catch on, but investors aren’t concerned about this right now. That’s because companies who raise their debt to buy back stock aren’t punished, and they generate similar returns to companies with lower debts.

Conclusion to 3 Myths About How Share Buybacks Affect Stock Performance

Companies that have weak balance sheets have been outperforming those who have debts, and it’s mainly because investors have faith that the company will pay off their debts when their share prices improve after buybacks.

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About the Author & How YOU Can Profit:  This article is the copyrighted product of the team at BuybackAnalytics.com  .

Buyback Analytics is a Top Tier Investing Platform to help investors find, analyze, and profit from investing opportunities not found through traditional investment tools. We specialize in this simple concept:  Follow the trades of Insiders – CONSISTENTLY PROFITABLE Traders, Investors, and Institutions because THEY get Inside Information that YOU don’t:

LEGAL Insider Trading / Inside Traders (CEOs, CFOs, Corporation’s Accountants & Attorneys, Politicians, etc.)
Stock Buybacks (Share Repurchases) by Public Corporations (ie. Apple, Tesla, Netflix, Meta (Facebook), Microsoft, etc.)
Market Moving Institutions (Examples: Market Makers, Investment Banks, Stock Brokerages, Hedge Funds, etc.)

Use of Our Articles: You are welcome to benefit from lots of FREE articles that you can read and learn from on our website blog.  You are also welcome to share or post this information as helpful content to your website or blog audience as long as the article, and this entire byline are left intact, word for word.  If you would like us to provide you with more, or bulk content for your blog or website to educate your audience on basic to expert financial and investor information & techniques, feel free to contact us at info@buybackanalytics.com .

3 Reasons Why A Company Should Consider Share Buybacks

The instances where share buybacks make perfect sense for a company

UPDATED: March 2022

3 Reasons Why A Company Should Consider Share Buybacks – An increasing number of companies are announcing share buybacks. The directors may believe that share buyback will positively impact shareholders and the business as a whole.

3 Reasons Why A Company Should Consider Share Buybacks

That’s why we will be looking at some of the most common reasons why a company would want to repurchase its shares and what benefits the shareholders will get as a result.

1. Take Advantage of Undervalued Share Price

One of the main reasons a company would think about repurchasing its shares is when the management believes that the company’s current shares are undervalued in the market. So, instead of keeping cash in the bank, the management decides to repurchase shares of the company at what they believe is a low price. There are two effects this buyback will have on the stock of the company:

  • The number of outstanding shares is reduced, and the pressure to buy increases as the company is buying its shares.
  • Management reassures the market that they are confident in their business operations when they spend millions to buy back their shares.

These two effects encourage investors to buy shares of the company. The market thinks that the management is only buying their shares because they believe that the value of these shares will rise in the future.

2. Increase Ownership and Reduce Dilution

Companies start issuing new shares over time through capital raising, or by exercising options, which reduces the dilution of existing shareholders. When a company repurchases its shares, it reduces the impact of that dilution. Reducing the number of outstanding shares also increases the ownership of the management of the company.

3. Enhancing Financial Ratios

Even though enhancing the financial ratios of the company isn’t the main reason for share buybacks, it is often a benefit that they gain when engaging in this activity. When the number of outstanding shares is reduced, it has a positive impact on the different ratios that are closely tracked in the market. These are known as the Return on Asset (ROA), Return on Equity (ROE), and Earnings per Share (EPS).

How Can Shareholders Benefit from a Share Buyback?

Share buybacks are a strategy from the capital management and are seen as a reward or benefit to shareholders. Even though investors benefit from dividends, when money is directly deposited into the bank account of the shareholder, there are indirect benefits of share buybacks. We have already highlighted that reducing the number of outstanding shares in the market increases the share price.

Conclusion to 3 Reasons Why A Company Should Consider Share Buybacks

The company returns cash to the shareholders and provides investors with the chance to cash in on their investment. The management shows their confidence in the company, which positively affects the market sentiment regarding the stocks.

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About the Author & How YOU Can Profit:  This article is the copyrighted product of the team at BuybackAnalytics.com  .

Buyback Analytics is a Top Tier Investing Platform to help investors find, analyze, and profit from investing opportunities not found through traditional investment tools. We specialize in this simple concept:  Follow the trades of Insiders – CONSISTENTLY PROFITABLE Traders, Investors, and Institutions because THEY get Inside Information that YOU don’t:

LEGAL Insider Trading / Inside Traders (CEOs, CFOs, Corporation’s Accountants & Attorneys, Politicians, etc.)
Stock Buybacks (Share Repurchases) by Public Corporations (ie. Apple, Tesla, Netflix, Meta (Facebook), Microsoft, etc.)
Market Moving Institutions (Examples: Market Makers, Investment Banks, Stock Brokerages, Hedge Funds, etc.)

Use of Our Articles: You are welcome to benefit from lots of FREE articles that you can read and learn from on our website blog.  You are also welcome to share or post this information as helpful content to your website or blog audience as long as the article, and this entire byline are left intact, word for word.  If you would like us to provide you with more, or bulk content for your blog or website to educate your audience on basic to expert financial and investor information & techniques, feel free to contact us at info@buybackanalytics.com .

When Does It Benefit a Company to Buyback Outstanding Shares?

How companies can profit when they buy back their outstanding shares

UPDATED: March 2022

When Does It Benefit a Company to Buyback Outstanding Shares? – When a company announces a share buyback program, they are officially signalling their intention to buy back some of their outstanding shares issued to raise capital. Shareholders are paid the market value of their stocks at the time of repurchase in exchange for periodic dividends and giving up their ownership in the company.

When Does It Benefit a Company to Buyback Outstanding Shares?

There are several reasons why it makes perfect sense for a company to repurchase its outstanding shares. Repurchasing shares helps a company reduce their cost of capital, consolidate ownership, benefit from undervaluation of their stock temporarily, and free up profits for paying executive bonuses and inflating financial metrics. We will look at when purchasing outstanding shares that will benefit a company right here.

Capitalizing on Undervalued Shares

A buyback program isn’t initiated by the company when it feels that it doesn’t have any further use of equity funding. The company can use buybacks strategically to generate more equity capital and not issue any additional shares. If the company decides that its stock is undervalued, it can buy back all or some of the outstanding shares at a reduced price and wait till the market corrects itself.

When the stock prices increase again, the company can reissue the shares at the new price, which increases the equity capital and keeps the outstanding shares at a stable number.

Consolidating Ownership

The company also uses share buybacks to consolidate its ownership. Every share represents an ownership stake in the business, and when the company has fewer outstanding shares, they have fewer people they must answer to. When there are fewer outstanding shares, a company can inflate its financial metrics, which investors and analysts use to assess the business’s growth potential and value.

The earnings per share (EPS) ratio increases automatically, and the return on equity (ROE) also rises when profits remain stable and shareholder equity decreases. Even though it makes sense that a company would try to ensure its control remains in the core leadership’s hands, share buybacks are generally used to increase compensation for executives. The company’s net profit is used to pay out shareholder dividends, and when there are fewer shareholders, the profit is divided into fewer parts. This distribution makes the company look more profitable to outside investors.

Reducing Cost of Equity Financing

A business will consider a share buyback when they no longer require any use for equity funding. So, instead of dealing with the unneeded equity and the dividend payments that go with it, the company decides to refund the shareholders’ investment by reducing the average capital cost. However, equity capital and debt are used for funding growth.

Conclusion to When Does It Benefit a Company to Buyback Outstanding Shares?

When a business decides to refund equity capital, that shows there are no profitable expansion projects left to invest in. A blue-chip company, which is already dominating its industry will repurchase shares as there is no room left for growth.

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About the Author & How YOU Can Profit:  This article is the copyrighted product of the team at BuybackAnalytics.com  .

Buyback Analytics is a Top Tier Investing Platform to help investors find, analyze, and profit from investing opportunities not found through traditional investment tools. We specialize in this simple concept:  Follow the trades of Insiders – CONSISTENTLY PROFITABLE Traders, Investors, and Institutions because THEY get Inside Information that YOU don’t:

LEGAL Insider Trading / Inside Traders (CEOs, CFOs, Corporation’s Accountants & Attorneys, Politicians, etc.)
Stock Buybacks (Share Repurchases) by Public Corporations (ie. Apple, Tesla, Netflix, Meta (Facebook), Microsoft, etc.)
Market Moving Institutions (Examples: Market Makers, Investment Banks, Stock Brokerages, Hedge Funds, etc.)

Use of Our Articles: You are welcome to benefit from lots of FREE articles that you can read and learn from on our website blog.  You are also welcome to share or post this information as helpful content to your website or blog audience as long as the article, and this entire byline are left intact, word for word.  If you would like us to provide you with more, or bulk content for your blog or website to educate your audience on basic to expert financial and investor information & techniques, feel free to contact us at info@buybackanalytics.com .

The Pros and Cons of Share Buybacks for Investors

Understanding how share buybacks work for a company

UPDATED: March 2022

The Pros and Cons of Share Buybacks for Investors – In general, public companies tend to be interested in share buybacks when the share prices are low, and there are greater chances of profitability.

The Pros and Cons of Share Buybacks for Investors

Share buybacks tend to boom when there is an economic downturn, but it’s not always advantageous for investors. To prove that point, we will be looking at some of the pros and cons of share buybacks for investors.

Pros of Share Buybacks

Rising Dividends

Companies get the chance to raise dividend payments after a buyback mainly because fewer shares are available on which the company has to pay dividends.

Boost in Share Prices

Investors can gain a short-term bonus from share buybacks. The repurchase means that there are fewer shares available for trading in the market. That raises the share price, and the shares will be worth more in the short term.

Less Excess Cash

If a company has excess cash saved in a money market account, they aren’t profiting from that money. It will earn a low-interest rate, which is a small part of the company’s profitable activities. Overall performance can improve when that excess cash is removed from the company books.

Better Earnings per Share

When companies announce profits, they tend to track their performance by looking at the earnings per share. The EPS numbers rise when there are fewer shares trading on the market, which helps companies drive higher stock prices and beat market expectations for their performance.

Positive Psychology

When a company starts to repurchase shares, it is a sign to investors that the company believes the shares are undervalued. That can kick start an upward swing in stock prices.

Cons of Share Buybacks

Poor Use of Capital

When a company is spending millions on share repurchase, investors should ask, “why the company isn’t doing something better with their money?” Each dollar used to buy back shares is a dollar that isn’t being used to develop a new product, acquire a competitor, hire new employees, ramping up marketing, or investing in growing the business.

Sinking Dividends

At times companies can cut their dividends when they are spending money on share buybacks. That’s because the company will have less cash to hand out in quarterly dividends after share buybacks. Investors who rely on dividend checks for income will suffer the most.

Poor Predictions

Although companies can buy back their shares when the price is low, it doesn’t happen most times. Predicting the stock market can be tricky. Companies can buy back shares at their highest value, which makes the share repurchase a bad use of their capital.

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About the Author & How YOU Can Profit:  This article is the copyrighted product of the team at BuybackAnalytics.com .

Buyback Analytics is a Top Tier Investing Platform to help investors find, analyze, and profit from investing opportunities not found through traditional investment tools. We specialize in this simple concept:  Follow the trades of Insiders – CONSISTENTLY PROFITABLE Traders, Investors, and Institutions because THEY get Inside Information that YOU don’t:

LEGAL Insider Trading / Inside Traders (CEOs, CFOs, Corporation’s Accountants & Attorneys, Politicians, etc.)
Stock Buybacks (Share Repurchases) by Public Corporations (ie. Apple, Tesla, Netflix, Meta (Facebook), Microsoft, etc.)
Market Moving Institutions (Examples: Market Makers, Investment Banks, Stock Brokerages, Hedge Funds, etc.)

Use of Our Articles: You are welcome to benefit from lots of FREE articles that you can read and learn from on our website blog.  You are also welcome to share or post this information as helpful content to your website or blog audience as long as the article, and this entire byline are left intact, word for word.  If you would like us to provide you with more, or bulk content for your blog or website to educate your audience on basic to expert financial and investor information & techniques, feel free to contact us at info@buybackanalytics.com .

Is Share Buyback Better for You As An Investor or Dividend Payment?

The difference between share buybacks and dividend payments and which is better

UPDATED: April 2022

Is Share Buyback Better for You As An Investor or Dividend Payment? – There are two main ways companies can return spare cash to shareholders. One’s through a share buyback, and the other one is as a dividend.

Is Share Buyback Better for You As An Investor or Dividend Payment?

However, what are those two things, what’s the difference, and more importantly, what do they mean for you as an investor? Below, we cover all of these topics to break down the jargon and get to the heart of what buybacks and dividends mean for you.

What Are Dividends?

So, the question is: What Are Dividends? Dividends are cash payments to shareholders. “Ordinary” dividends are usually paid twice a year, after interim and final results. That means shareholders should get a steady source of income. Because dividends are at a manager’s discretion, they’re not guaranteed and can vary in size.

How Do Dividends Affect You?

If you’re looking to use dividend payments as an income, you might want to look at a company’s dividend yield. The yield is the annual dividend payment as a percentage of its current share price. So, How Do Dividends Affect You? Well, if a company’s share price is 100p, and it has paid a dividend of 6p in the past year, the dividend yield is 6%. Yields are usually calculated using last year’s dividend. This means they aren’t a reliable guide to the income you’ll get in the future, as there’s no guarantee last year’s payment will be repeated this year.

As an investor, dividends provide flexibility in that you can choose what you do with the cash. You could:

  • Reinvest to buy more shares in the company
  • Buy shares in another company
  • Use it as an income

You’re taxed on dividends when you hold shares outside an ISA and a SIPP, so receiving a higher payment and then reinvesting it back into the company might not be in your best interests. Remember, tax rules can change, and benefits depend on your individual circumstances.

What Are Share Buybacks?

A share buyback is when a company uses its extra cash to buy its own shares and usually cancels them.

How Do Share Buybacks Affect You?

A buyback means you’ll own the same number of shares, but because there are fewer shares in existence, the value of your shares should rise, all else being equal. You’ve got a bigger slice of the same pie. Remember, all investments can fall as well as rise, so investors might get less back than they invest.

Ideally, a share buyback will take place when the company’s management thinks the shares are undervalued. This is one half of the basic “buy low, sell high” mantra. If the company plays its cards right, this can be great for investors. A well-executed share buyback can save shareholders having to pick the right time to reinvest a dividend payment. However, there’s always the chance of the management buying back the shares at the wrong time. Generally, share buybacks can:

  • Give a positive signal that the company thinks its shares are worth more than they’re trading at but remember this won’t always be the case.
  • Increase the value of existing shares.
  • Cut out the middle man. If you reinvest your dividends, a share buyback does it for you, saving you dealing charges.

A company is under no obligation as far as share buybacks go. In most cases, it can stop repurchasing shares whenever it wants. They aren’t committed to dividend payments either, but the management will typically think about stopping a buyback before cutting the dividend.

Conclusion of Is Share Buyback Better for You As An Investor or Dividend Payment?

There’s no clear winner in the buybacks vs. dividends debate, as both are good news for investors. However, it’s important to remember their differences. The key takeaway is that dividends are better for income, while buybacks are more geared towards capital growth. Whatever your circumstances, understanding the differences means you can choose what’s right for your investment goals.

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About the Author & How YOU Can Profit:  This article is the copyrighted product of the team at BuybackAnalytics.com .

Buyback Analytics is a Top Tier Investing Platform to help investors find, analyze, and profit from investing opportunities not found through traditional investment tools. We specialize in this simple concept:  Follow the trades of Insiders – CONSISTENTLY PROFITABLE Traders, Investors, and Institutions because THEY get Inside Information that YOU don’t:

LEGAL Insider Trading / Inside Traders (CEOs, CFOs, Corporation’s Accountants & Attorneys, Politicians, etc.)
Stock Buybacks (Share Repurchases) by Public Corporations (ie. Apple, Tesla, Netflix, Meta (Facebook), Microsoft, etc.)
Market Moving Institutions (Examples: Market Makers, Investment Banks, Stock Brokerages, Hedge Funds, etc.)

Use of Our Articles: You are welcome to benefit from lots of FREE articles that you can read and learn from on our website blog.  You are also welcome to share or post this information as helpful content to your website or blog audience as long as the article, and this entire byline are left intact, word for word.  If you would like us to provide you with more, or bulk content for your blog or website to educate your audience on basic to expert financial and investor information & techniques, feel free to contact us at info@buybackanalytics.com .