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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: E_K_S who wrote (76654)	12/8/2024 9:50:42 AM
From: Harshu Vyas	Respond to of 78567

Yes, this is true. Share buybacks wouldn't be included in a DDM. However, share buybacks (I think) are dependent on too many factors - if executed poorly, they can be value destructive even if they increase the share price temporarily. I remember reading a year/two ago an article about UK companies that ate themselves alive (and destroying themselves) by using debt to fund buybacks assuming that their businesses would broadly remain the same and they could use cash flows to pay interest/retire debt later on. I'm generally wary of share buybacks unless the shares are actually cheap (how many companies trading at low multiples to cash flow/earnings buy back shares? quite few, because they likely have to use the cash elsewhere) and they have the balance sheet strength to support such buybacks. For example, Cumulus Media engaged in a Dutch tender to repurchase shares roughly 1.5 yrs ago. The shares looked cheap until you looked at the levels of debt on the balance sheet. Look at the shares now - they're teetering on the edge of bankruptcy. Whilst dividends do correlate to stock prices, its correlation is much smaller and the return to investors is tangible and cannot be obscure. I understand that historically share buybacks were also more tax effective (and probably still are), but I am still more in favour of dividends in this market.