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Technology Stocks : IBM -- Ignore unavailable to you. Want to Upgrade?

To: Hsien W. Chang who wrote (3027)	5/3/1998 10:18:00 AM
From: Mark Brophy	Read Replies (3) \| Respond to of 8218

You already understand it. Since I'm considering BV/share, repurchases reduce the denominator and it's a wash. If the company pays a dividend, the numerator is reduced without a reduction in the denominator, so the company looks bad. My focus on this metric unfairly punishes a company that pays a dividend, so it's only an approximation. The metric also unfairly punishes a company that repurchases a large amount of shares because they pay more for the shares than book value. IBM's has repurchased a significant amount of shares, but growth in BV/share is still a good metric, albiet an approximation. Since IBM stock has quadrupled in the past few years, the no-brainer decision to repurchase stock requires reconsideration. Revenues and earnings haven't grown very much, so the company could use the cash better by making acquisitions.

To: Hsien W. Chang who wrote (3027)	5/9/1998 5:12:00 PM
From: Bill Martin	Read Replies (1) \| Respond to of 8218

Re: Can you explain to me the difference between stock repurchasing and paying out cash flow as dividend. One difference generally cited is the tax consequence. Just for the sake of argument, presume that IBM pays a 40% marginal tax rate and so do you (combined Fed + State). If IBM makes $1 of pretax profit then they end up with $0.60 after taxes. If they pay out that $0.60 in dividends and you pay another 40%, then you only pocket $0.36 after tax from IBM's $1 of pretax profit. The government(s) by contrast have pocketed $0.64 from IBM's $1 of pre-tax profit -- more than you do on dividends! If they buy back stock instead you don't pay any personal income tax on the benefit (presumably the stock price having been driven up) until you finally sell the stock, when you only pay the capital gains rate. I'm not sure, but I believe the money they use to buy back the stock is after-tax to the company involved. Bill