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.

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.

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.

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.

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

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???

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

I agree with you that it’s absurd to claim you’re spending on growth when you’re actually distributing money to shareholders, whether through a buyback or a dividend.

A “scrip dividend” (which I guess must be equivalent to what we Yanks call a “stock dividend”) is not a payout at all. It’s a split at a non-integer multiple. One share becomes, say 1.05 shares, and the stock price gets multiplied by the reciprocal of 1.05. Unless there is a new influx of money on the demand side — e.g. the company is putting up cash to buy some of the new shares — if a bunch of stockholders decide they want to cash out their 5% dividend shares, they’re going to drive the price down even further. A stock dividend does not distribute cash to shareholders.

Now, if you actually think Dell had some great internal growth opportunities to invest in, then maybe that would’ve been a good thing — maybe they should’ve dumped that cash into R&D, or something. But as Matt Yglesias says, innovation is really hard. Maybe Dell was absolutely right that it was better for them to distribute cash. And maybe the investors who bet against them on that point — whether buy reinvesting dividends or refusing to take part in the buyback program — were wrong.

One last thing: on your statement that Dell spent all of the money from its earnings, and then some, on stock buybacks — is that right? You haven’t given the numbers you’d need to, to assert it. I suspect it probably is correct; in the most recent few years, going backward, they reported around 3.49, 2.64, 1.43, and 2.48 billion in earnings… But over the 15-year window, maybe they had some really inflated numbers in ’98-’00. So I’d want to see the actual total earnings number for the past 15 years, not just EPS, to be sure. (Or I suppose you could take each buyback period, divide the spend for that period by the number of shares at the beginning of the period, and sum those up, to get a buyback-spending per share figure to compare to the EPS figure. But that seems like a lot more work.)

“shareholders take out much more than they put in”
“And all the extra money went to fickle shareholders who sold their stock back to the company.”

Shareholders aren’t selling their shares back to Dell, they are selling them on the open market, and Dell happens to be a buyer. They aren’t taking money out of Dell, any more than if I sold you my shares. And why are the shareholders fickle? What if they no longer believed in the ability of Dell’s management to run the company competently?

“In theory, shareholders who want income will sell some percentage of their shares back to the company and get income that way,”

There’s this thing called the “stock market”, where people can buy and sell shares in publicly traded companies, even if the company isn’t buying or selling shares. Buybacks aren’t necessary for this function.

“shareholders who don’t want income will see the value of their shares rise, thanks to the fact that there’s extra demand in the market and the fact that the free float is shrinking”

This assumes demand is sticky and not transient, and that over the course of a year, there would be the same amount of sellers and buyers whether or not Dell was buying shares. Which is not a safe assumption.

” I quite like buybacks over dividends: they’re a way of returning cash to shareholders, without sticking those shareholders with possibly-unwanted income.”

The primary purpose of a corporation is to enable multiple shareholders, who share in the profits; allowing people to speculate on whether a company will grow faster than the population is a side effect. If you don’t want to receive earnings, buy a less mature company. But you already know that Dell is not a growth company, and should be viewed as an income generator, not a growth engine.

But it’s not something I’ve really heard of while it’s quite common in London as you say.

If US companies don’t I wouldn’t be surprised to find out that it’s a difference of tax treatment that explains the difference (that difference that I don’t know exists).

“shareholders take out much more than they put in”
“And all the extra money went to fickle shareholders who sold their stock back to the company.”

Shareholders aren’t selling their shares back to Dell, they are selling them on the open market, and Dell happens to be a buyer. They aren’t taking money out of Dell, any more than if I sold you my shares. And why are the shareholders fickle? What if they no longer believed in the ability of Dell’s management to run the company competently?

“In theory, shareholders who want income will sell some percentage of their shares back to the company and get income that way,”

There’s this thing called the “stock market”, where people can buy and sell shares in publicly traded companies, even if the company isn’t buying or selling shares. Buybacks aren’t necessary for this function.

“shareholders who don’t want income will see the value of their shares rise, thanks to the fact that there’s extra demand in the market and the fact that the free float is shrinking”

This assumes demand is sticky and not transient, and that over the course of a year, there would be the same amount of sellers and buyers whether or not Dell was buying shares. Which is not a safe assumption.

” I quite like buybacks over dividends: they’re a way of returning cash to shareholders, without sticking those shareholders with possibly-unwanted income.”

The primary purpose of a corporation is to enable multiple shareholders, who share in the profits; allowing people to speculate on whether a company will grow faster than the population is a side effect. If you don’t want to receive earnings, buy a less mature company. But you already know that Dell is not a growth company, and should be viewed as an income generator, not a growth engine.