Wednesday, July 11, 2007

Stock buybacks are a good thing, right? -- USA Today

Good article. I noted particularly the problem of "companies announcing stock buybacks from 1981 through 1995 averaged 24% more shares outstanding five years later, says Akhtar Siddique, economist at the Office of the Comptroller of the Currency." The ugliest possibility is that the buybacks were just "camouflage" for the dilution of shareholder value due to outsized stock option plans transferring the stockholders' company and its earnings into the hands of managers and favored employees. Cash dividends are a more honest way to reward stockholders. Of course, when the directors are management and management toadies, then that dilution can be seen as a very good thing. To get a simplistic approximation of the percentage of the annual earnings given away, you have to get into the annual report, find the number of shares reflected in the options grants, find the market value per share, calculate the total current value of that many shares, and compare that number to the company's earnings after tax. You may be shocked.

Stock buybacks are a good thing, right? -

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