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Old 05-24-2013, 02:22 AM
 
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It's my understanding that the number of outstanding shares decreases, allowing an increase in the per-share dividend.

What other effects does a buyback have? Does the board get to vote the shares bought back, or does the number of voting shares also decline? Can the corp resell those shares into the market at a later time?
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Old 05-24-2013, 05:31 AM
 
Location: US
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Sometimes it is viewed as a positive sign. If the company wants to buyback its own stock, than they probably believe their future looks good.
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Old 05-24-2013, 10:33 PM
 
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Originally Posted by freemkt View Post
It's my understanding that the number of outstanding shares decreases, allowing an increase in the per-share dividend.

What other effects does a buyback have? Does the board get to vote the shares bought back, or does the number of voting shares also decline? Can the corp resell those shares into the market at a later time?

Companies have three things that they can do with earnings - reinvest it into the business through capital expenditures and acquisitions, pay dividends, or repurchase their shares. You are correct, share buybacks lead to a higher EPS.

Corporate buybacks generally require board approval. In general, the board gives management the authorization to purchase a certain amount of shares over a certain period of time. The specifics are generally NOT communicated to the public as the company would like to acquire the stock at thej lowest possible cost. They can resell the stocj at a later date.

There are two major things that have to be considered. Does the company have an excess of available cash to make the purchase. Increasingly the more relevant question is whether the company has enough money in the US to purchase the shares as most multinationals keep most of their cash abroad due to statuatory requirements and to avoid US federal taxes.
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Old 05-26-2013, 10:50 AM
 
Location: Copenhagen, Denmark
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Reducing debt of any kind is generally viewed positively by investors.
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Old 05-26-2013, 03:49 PM
 
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Originally Posted by Frihed89 View Post
Reducing debt of any kind is generally viewed positively by investors.
A buy back in shares is NOT a reduction in debt. It is a reduction in EQUITY of the company.
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Old 05-26-2013, 06:45 PM
 
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Buffet has an interesting take n his 2011 letter discussing the prospects as it relates to BRK and IBM buybacks. One key is that the buyback occurs when the company share price is cheap (undervalued) to increase the number of shares bought, maximizing per share revenue to follow; so in the case of IBM, he wants the stock to 'languish' during the buyback period.
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Old 05-26-2013, 09:39 PM
 
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Yes, it reduces outstanding shares and helps raise the price (by lowering the p/e ratio). Another effect is that you don't have to pay taxes on it right away whereas if you got a dividend and used the money to buy more shares, you would have to pay tax on the dividend and end up with a little less total equity versus the company buying back stock itself. Of course you pay tax on any gains when you sell, but by deferring it you can benefit more if the stock does indeed go up.

So between paying a divy or buying back shares, there can be a benefit to the latter. If the shareholder doesn't want more equity, he could sell the portion of the stock equivalent to the buyback (therefore maintaining his equity percent) and treat the sale like a dividend.
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