Re: [Pen-l] stock buy backs

[Shane Mage <shmage@xxxxxxxxxxxx>]

On Oct 8, 2008, at 8:26 PM, Perelman, Michael wrote:

> On Monday the Wall Street Journal made the point I was trying to make
>
> The main advantage buybacks are said to have over dividends is their
> inherent flexibility. For many investors, dividends are sacrosanct.
> Buybacks, however, are viewed more like discretionary bonuses. Oil
> companies such as Exxon Mobil have hoovered up stock in recent years,
> rather than boosting dividends to a similar degree, for fear of tying
> themselves into an unsustainable payout when energy prices fall.


There are three other advantages:  (1) for stockholders dividends are  
taxable immediately and at a higher rate than deferrable capital  
gains; (2) for executives, with options and bonuses leveraged on the  
stock price (ie., the very ones deciding on repurchase vs. dividend)  
buybacks are a perfect, perfectly disguised, way to loot the  
shareholders; (3) for the financial sharks buybacks, even more than  
dividends, open the way to juicy commissions whenever the corporation  
wants to raise capital.

Beyond all this, buybacks and big dividends signify the lack of  
opportunity for profitable investment or so strong a monopoly position  
that raising production would decrease profits.

IBM for decades never paid a dividend or bought back a share.



Shane Mage

"This cosmos did none of gods or men make, but it
always was and is and shall be: an everlasting fire,
kindling in measures and going out in measures."

Herakleitos of Ephesos, fr. 30



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