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Pastimes : Ask Mohan about the Market
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To: Zeev Hed who wrote (15534)4/23/1998 8:06:00 PM
From: Jack Clarke  Read Replies (2) of 18056
 
Hi Zeev,

So if a company has a dividend yield of let say 1.5% and it buys back in a given year 2% of its stock, the total yield is 4.5%

With great respect, I have heard this before and still don't quite understand it. I admit that it's probably my superficial (2 + 2 = 4) reasoning, but what exactly is a company accomplishing by buying back its own stock? Do the pieces of paper increase the company's value? (I guess they do increase its value on paper in a roaring bull market.) But there is no tangible increase in goods or services with extra stock, as I see it. Seems to me like just a way of keeping the stock bubble expanding, and just coincidentally, massively increasing the insiders' options value.

I am not trying to contradict you, just admitting to my own lack of understanding.

Jack
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