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A comment on GM’s Stock Buyback Is Bad for America and the Company. Parent comment

Re:GM’s Stock Buyback Is Bad for America and the Company by eru on Friday March 13, 2015 @08:47PM (#9201059)
It doesn't matter if the stock is undervalued for this narrow question of dividends vs stock repurchases.

If an outside investor buys stock, of course, under/overvaluation matters.

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Re:GM’s Stock Buyback Is Bad for America and the Company by aczerepinski on Thursday March 19, 2015 @09:42AM (#9231791)
Sometimes it's easiest to illustrate the flaw in a theory by using extreme examples, so please forgive me for the hyperbole.

Let's say you have a company with only $100M in discounted future earnings (and no significant balance sheet assets), but it is trading on the market for $1B. This 10x intrinsic value scenario isn't common in real life but we definitely see examples like it during market bubbles.

The company wants to distribute $1M back to shareholders. If it pays a dividend, shareholders receive the full million less taxes - so perhaps $600-750k in their pockets.

If on the other hand the company buys back $1M in stock, they are buying 0.1% of $100M in future earnings, or $100k.

If my post doesn't make sense, google "Buffett on buybacks." He's written about the subject in a number of his annual letters.

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