Comments on: The problem with buybacks, Dell edition http://blogs.reuters.com/felix-salmon/2012/09/04/the-problem-with-buybacks-dell-edition/ A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 http://wordpress.org/?v=4.2.5 By: HiOnow http://blogs.reuters.com/felix-salmon/2012/09/04/the-problem-with-buybacks-dell-edition/comment-page-1/#comment-45774 Wed, 06 Feb 2013 05:02:41 +0000 https://blogs.reuters.com/felix-salmon/?p=17228#comment-45774 Michael is restless and it’s easier to game doubling the price to the new private equits without the public baggage.

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By: Sechel http://blogs.reuters.com/felix-salmon/2012/09/04/the-problem-with-buybacks-dell-edition/comment-page-1/#comment-45770 Tue, 05 Feb 2013 22:46:39 +0000 https://blogs.reuters.com/felix-salmon/?p=17228#comment-45770 ERA of the PC is over. Unless Dell believes it holds some competitive advantage(it does not) it should operate the company as a liquidating trust , invest only what’s necessary to maintain the product and return everything else to the shareholders.

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By: TFF17 http://blogs.reuters.com/felix-salmon/2012/09/04/the-problem-with-buybacks-dell-edition/comment-page-1/#comment-42918 Sat, 08 Sep 2012 00:13:34 +0000 https://blogs.reuters.com/felix-salmon/?p=17228#comment-42918 Felix, this is just a fancy way of saying that when you hold a stock with a P/E over 30 that you should expect to lose money. Their net income increased by 50% from 2003 to 2012, their shares outstanding fell. But there is almost no level of growth which will defend against a P/E retrenchment from 40 to 6.

For a while in there their share count wasn’t decreasing much at all. Now they are repurchasing quite aggressively, and at a bargain valuation. If they can maintain their current cash flow, buyers at the current price will be richly rewarded.

Then you get to HP, with a share repurchase program SO strong that their revenues and cash flow can contract significantly and STILL grow on a per-share basis.

Conclusion — you get much more bang for the buck when buying at a 6 P/E than a 60 P/E. At least you do if the company doesn’t die.

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By: realist50 http://blogs.reuters.com/felix-salmon/2012/09/04/the-problem-with-buybacks-dell-edition/comment-page-1/#comment-42836 Wed, 05 Sep 2012 23:27:29 +0000 https://blogs.reuters.com/felix-salmon/?p=17228#comment-42836 @Auros – winstongator’s comment bears on your point. To the extent that Dell employees were exercising options, Dell’s net spending on its buyback also looks a lot smaller, since it was receiving cash from employees who exercised options.

Regarding dividends, many large companies have dividend reinvestment programs that allow shareholders to reinvest dividends automatically into share purchases of the company. It is true that taxes have to be paid on the dividend, though that’s really just a question of timing of how long taxes are deferred since the dividend rate and LT capital gains rates are currently the same.

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By: realist50 http://blogs.reuters.com/felix-salmon/2012/09/04/the-problem-with-buybacks-dell-edition/comment-page-1/#comment-42834 Wed, 05 Sep 2012 22:58:18 +0000 https://blogs.reuters.com/felix-salmon/?p=17228#comment-42834 @Auros – winstongator’s comment bears on your point. To the extent that Dell employees were exercising options, Dell’s net spending on its buyback also looks a lot smaller, since it was receiving cash from employees who exercised options.

Regarding dividends, many large companies have dividend reinvestment programs that allow shareholders to reinvest dividends automatically into share purchases of the company. It is true that taxes have to be paid on the dividend, though that’s really just a question of timing of how long taxes are deferred since the dividend rate and LT capital gains rates are currently the same.

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By: realist50 http://blogs.reuters.com/felix-salmon/2012/09/04/the-problem-with-buybacks-dell-edition/comment-page-1/#comment-42833 Wed, 05 Sep 2012 22:56:53 +0000 https://blogs.reuters.com/felix-salmon/?p=17228#comment-42833 @Auros – winstongator’s comment bears on your point. To the extent that Dell employees were exercising options, Dell’s net spending on its buyback also looks a lot smaller, since it was receiving cash from employees who exercised options.

Regarding dividends, many large companies have dividend reinvestment programs that allow shareholders to reinvest dividends automatically into share purchases of the company. It is true that taxes have to be paid on the dividend, though that’s really just a question of timing of how long taxes are deferred since the dividend rate and LT capital gains rates are currently the same.

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By: winstongator http://blogs.reuters.com/felix-salmon/2012/09/04/the-problem-with-buybacks-dell-edition/comment-page-1/#comment-42807 Wed, 05 Sep 2012 14:34:01 +0000 https://blogs.reuters.com/felix-salmon/?p=17228#comment-42807 One of the big reasons you see so much buyback in tech is to limit the dilution from options issuance. Dell issued millions of options in the 90’s, and a good portion of their buybacks had to be absorbing the shares that were created when options were exercised. From that pov, the buybacks were a way to compensate employees. Options were not considered expenses for the 1997-2012 period where most of the options were issued. So you have this non-expense expense absorbing the profit that should go to long-term shareholders but doesn’t.

Account for the number of options exercised, back out those costs, and re-calculate the cumulative earnings for that period.

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By: TinyTim1 http://blogs.reuters.com/felix-salmon/2012/09/04/the-problem-with-buybacks-dell-edition/comment-page-1/#comment-42747 Wed, 05 Sep 2012 09:38:23 +0000 https://blogs.reuters.com/felix-salmon/?p=17228#comment-42747 Felix,
The simple fact is that a company buying back stock with a declining price looks bad and vice-versa.

Once you have run out of the need for growth capital – i.e. maturity – you need to choose how to remunerate shareholders – divs or buyback.

Often for shareholders their preference comes down to tax issues – witholding and income on divs, capital gains on buybacks.

Scrip is just BS. That isn’t returning capital.

Of course a mature business should be able to return ALL earnings to shareholders. But to say a company’s share price should be equal to the sum of the previous 10 years’ earnings is perhaps the weirdest valuation metric you have come up with yet!!

At maturity stock price = NPV of future earnings.

Would you like to buy some Nokia???

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By: dWj http://blogs.reuters.com/felix-salmon/2012/09/04/the-problem-with-buybacks-dell-edition/comment-page-1/#comment-42716 Tue, 04 Sep 2012 20:52:18 +0000 https://blogs.reuters.com/felix-salmon/?p=17228#comment-42716 NYSE:TR has been doing “scrip dividends” for a while, though I’ve not heard them called that before; I typically hear it called a “stock dividend”, though that can be unclear to people who aren’t familiar with the idea (who might simply think you mean a dividend that a stock pays, rather than a dividend paid in stock). Google and Yahoo Finance both report annual 103:100 stock splits, but it’s treated differently for tax purposes for the company and the shareholder as well as accounting purposes for the company.

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By: KenG_CA http://blogs.reuters.com/felix-salmon/2012/09/04/the-problem-with-buybacks-dell-edition/comment-page-1/#comment-42715 Tue, 04 Sep 2012 20:50:04 +0000 https://blogs.reuters.com/felix-salmon/?p=17228#comment-42715 sorry about the duplicate comments – am I the only one having trouble submitting them? It doesn’t show the comment, and it says it’s waiting for the reuters server to respond. After trying several times, I used a different browser, and then the original comment showed up. twice.

I think Reuters should have taken advantage of the 2-week shutdown and revamped the comments section.

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