Re:Fed Prints Another $205B This Week, M2 Growing at Fastest...
by colinmhayes on Friday April 24, 2020 @12:57PM
(#22970276)
When companies do buybacks they don't control the shares they buyback, the shares disappear. The market cap of the company decreases because they know have less assets but the stock price doesn't because the cap is split over less shares. Either way, the market cap theoretically decreases by the amount paid out.
I don't think that is true at all.
A dividend is literally "We are paying out some amount of cash. If our stock price is $40 and we give $5 to each shareholder the shares should immediately go down to $35". Although since the stock price should be a NPV of the company's cash flow, they technically have even less working capital to create returns over the years, so I think the price should go down by even more than $5.. but that's a different discussion...
In a stock buyback.. let's say the price is $40 and they buy the equivalent of $5 back from the market. Well.. yes they gave away $5 but they also gained $5 of value because they are now holding the shares. It's a net zero transaction if their stock price doesn't change from it. Which.. it shouldn't unless you think it's a signal of something. Yes there's a bit more details, but value is not "given away" in the same sense.
In the dividend example, the company gave away money.
In a stock repurchase, they gave away money in return for shares of (almost) equal value.