Ding Ding Ding - Last call for train departure to the sky - Ding Ding Ding

[Liberty]

I think they are very different.  Capex builds an asset that adds to earnings.  Buybacks don't.  They add to earnings per share, but they also reduce the share count, and the market cap (of a stock or the index) is price x the number of shares.  So no, the index does not go up just because the stock price goes up.

 

I think you might be right. I think higher retained earnings because of a lower dividend payout does make a difference compared to the historically higher dividend payout, but not buybacks. My original post on this was about reinvestment in the business, and then this shifted to buybacks and I lost the thread. My bad.

 

If a company with a finite lifespan (and most companies have a finite lifespan) never pays a dividend, its NPV is 0, even if it spends all its FCF buying back stock, because that stock will turn out to be worthless.  I find that a sobering reminder about the value of buybacks!

 

True, but not really relevant today in practice. Maybe if no secondary market existed, people would insist on a higher payout.

[petec]

Yes, sorry - I think I hijacked your reinvestment comment by talking about buybacks.  But I think (haven't got the stats to prove it to hand) that the reduction in dividends has gone to buybacks.

 

And you're right, the example isn't what's actually happening, but I find it a useful reminder that buybacks are not necessarily value additive and are not necessarily equivalent to a dividend.