Breaking News
0

Stock Buybacks - Strategic Advantage For Shareholders

By David KassStock MarketsApr 16, 2018 12:12AM ET
www.investing.com/analysis/stock-buybacks-200305642?preview_fp_admin_1234=this_is_1234
Stock Buybacks - Strategic Advantage For Shareholders
By David Kass   |  Apr 16, 2018 12:12AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

A very interesting article in today’s Washington Post discusses the issue of stock buybacks by corporations.

Stock buybacks along with cash dividends enable companies to return capital to shareholders. Stock buybacks are a tax efficient means of doing so. Whereas cash dividends are taxable to shareholders, stock buybacks are not (unless shares are sold with a capital gain). Since stock buybacks reduce the supply of outstanding shares, they should increase the price of these shares over time. However, Warren Buffett has stated that a company should repurchase its own shares only at prices below its intrinsic value. Specifically, Buffett will repurchase shares of Berkshire Hathaway (NYSE:BRKa) at prices below 1.2 times book value. At Berkshire’s closing price of $295,891 per class A share on April 13, it traded at 1.4 times its book value of $211,750 as of December 31, 2017. Buffett considers Berkshire’s intrinsic value to exceed 1.2 times book value and is allowing for a “margin of safety.”

Many companies buy back their shares on a regular basis. To the extent that these shares are being purchased at prices above their intrinsic value, Buffett would conclude that shareholder value is being destroyed.

Intrinsic value for a specific company can be estimated by performing a discounted cash flow analysis based on projected future free cash flows and an appropriate discount rate.

Stock Buybacks - Strategic Advantage For Shareholders
 

Related Articles

Steve Miller
Skechers Hits The Ground, Down 28% By Steve Miller - Apr 20, 2018

Skechers (NYSE:SKX) traded 28% lower on Friday morning, catching investors by surprise, after lowering Q2 guidance to below that of Wall Street analysts. Overall, SKX managed a...

Al Brooks
Emini Island Top After Island Bottom By Al Brooks - Apr 20, 2018 1

Pre-Open Market Analysis I said before the open yesterday that there was an increased chance of a bear trend day after 3 days in a tight bull channel on the 5-minute chart....

Stock Buybacks - Strategic Advantage For Shareholders

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email