Author Topic: Should Repurchases be counted in FCF/yield per share?  (Read 17918 times)

JBird

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Re: Should Repurchases be counted in FCF/yield per share?
« Reply #80 on: September 10, 2019, 07:16:12 AM »
The shareholder merely needs to make 28 cents worth of sales, each and every quarter.

I don't follow here.

Well, the shareholder is no longer getting a 28 cent per quarter cash dividend any longer (it was cut to zero).  Let's say the shareholder has 100,000 shares.  In the old days, he would get $28,000 of cash dividend each quarter.  Under my regime, the company will be using that very same $28,000 (28 cent per share per quarter) to repurchase shares.

Now (under my regime), he just sells shares each quarter amounting to $28,000 cash proceeds.  He might not even owe any tax on this (depends on his cost basis).  Potentially he sold for a capital loss and can actually take the $28,000 distribution completely tax free, as well as reducing his capital gains tax bill from other sales.

Compared to the world where he's automatically paying tax on $28,000 of dividend, that's a huge leap forward for mankind.

Eric, I'm still in agreement regarding dividends vs. buybacks.

There's one consistent statement of pushback I receive regarding capital-gain-income over dividends: "If you sell shares at any kind of loss, you're just taking principle." In other words, in a falling market the strategy doesn't work.

I would love to hear your thoughts on that.

My take is that you can only take as much income from a stock as the company earned in profit attributable to you. If it earns $5 in profit attributable to your holdings (look-through earnings) then you can take $5 from the stock as a dividend or by selling $5 worth of shares. If it doesn't earn, you can't take. Therefore, the stock price being up or down from your cost basis is really not a factor regarding your income withdrawals from the stock.
Woman and wine, games and deceit, make the wealth small and the wants great. - Ben Franklin


scorpioncapital

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Re: Should Repurchases be counted in FCF/yield per share?
« Reply #81 on: September 10, 2019, 09:11:36 AM »
" Therefore, the stock price being up or down from your cost basis is really not a factor regarding your income withdrawals from the stock."

Not sure I can agree with this conclusion. If a stock is extremely overvalued, selling shares is going to yield far greater return than a dividend that won't adjust that much to this overvaluation of the share price. If it's undervalued, a dividend may be slower than an opportunistic buyback program. Problem is most companies are brainless zombies and don't understand opportunistic if it hit them in the side of the head. Or worse, they see opportunity all the time when there really is none.