GoSeigen wrote:TheMotorcycleBoy wrote:Now that I've proved to myself to that a firm can choose to BB forever, what about shareholder value? So hypothetically a firm can buyback 50% of their stock, as a cash returning vehicle, if they are high quality firm. Then what? Well the consequence of the 50% BB is a doubling of EPS (good news for execs) and the doubling of earnings yield. We then wait for the share price to double, and when it does I sell, make a 100% profit on my shares, then the firm issue a 2-to-1 stock split, and the SP halves, I buy the same quantity of shares back. This all sounds great but in the real world I'm at the whims of the market place to rerate the shares which in a world of uncertainty may never happen, and even it does I have to time the market correctly to benefit from the dividend-equivalence suggestion. As far as I'm concerned this is clearly a-bird-in-hand decision for me favouring the instant cash dividend option, and unlike dividends; in both the initial buyback by the firm and when I sell/rebuy brokers make money on fees and spreads.
I think you've made it a bit more complicated there than necessary.
Not really. GS, when I say cash, I mean cash right here in my hand, or at least funds in an account. The thought experiment is necessary to illustrate that when a firm "returns cash in a div" the cash obtained is tangible and instant. This is not so in a buyback since to extract cash the owner will need to sell at a given price to realise any such tangible equivalence. And whether this occurs profitably is at the whims of the market. When people talk about cash they are referring to a medium of highest liquidity in their location. Not to a hypothetical uncertainty.
When you look at the position of all the shareholders it instantly becomes clear that in purchasing (say) 5% of their shares the company has returned cash to them
No it does not. It means that the company has spent a quantity equal to 5% of their previous market capitalisation with members of the financial sector. Whether all the shareholders see a sum of cash proportionate to their individual holding value is an entirely different proposition.
If I can't see a numerical increase in an account, I can't see any cash being returned. I'm pretty sure I made this apparent earlier. A 5p dividend is an extra 5p in my account; a share buyback executed using an identical sum of money, is not guaranteed to raise the SP by 5p. And indeed if it did friction would occur on the part of a owner attempting to realise this sum.
I'm getting the distinct impression that you regard for example ULVR spending €3B buying back its stock, somehow results in all holders instantly acquiring more to the value of €3B x whatever fraction of ULVR's market capitalisation in their accounts. That doesn't happen. But it would if the cash was returned by way of a div payout of that amount.
Don't forget your earlier remark
that is no more true than if the company pays the same amount to shareholders in dividends year after year. The two are interchangeable AFAICS.
My bold. I can only assume my understanding of words "cash" and "interchangeability" are different from that many other investors.
What about all those shareholders who want to dispose of their shares?
Strawman. Holders can sell whenever there is sufficient buyers, regardless of any div or BB policy.
Matt