Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: Simba who wrote (72151)	12/21/1999 9:19:00 AM
From: Freedom Fighter	Respond to of 132070

Simba, I think it is the better to receive repurchases instead of dividends because the higher EPS will translate into a higher stock price "over time" and the repurchases have tax advantages. (you will be taxed on your dividends) On the flip side many of today's repurchases are being done to avoid the dilution related to stock options. Still others are being done at ridiculous prices that strongly suggest that the goal is to drive up the price of the stock so management can cash those options in. Wayne

To: Simba who wrote (72151)	12/21/1999 9:52:00 AM
From: Mike M2	Read Replies (1) \| Respond to of 132070

Simba, I would add to Wayne's reply that in the short run share repurchases seem to be the fast route to maximizing shareholders wealth but it is not a good policy for the long term because that money could be used to invest in productive investments that could generate larger returns over the long run. Andrew Carnegie reinvested heavily into his steel business . If he had paid out more dividends to himself ( Carnegie was not public) he would have had less capacity to produce real wealth over the long run (steel) . Share repurchases make sense when a stock is historically cheap when valuations are at record highs it makes more economic sense to raise equity capital rather than dissipate it on share repurchases. the reason for this apparent paradox in corporate finance is the proliferation of employee stock options. The fast route to rising share prices is financial engineering but the effects are short lived. When all businesses behave the same way - financial engineering at the expense of productive investment there is a decline in economic activity and profits because one firms investment in productive capacity is a source of revenue for another firm. Mike