stock buyback

Share Buyback Myths

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Share Buyback Myths 1

Arrgghhh! Share buybacks, or stock repurchases, are a tool that publicly traded companies use to manipulate their shareholders into making them think that they are working for them. Unfortunately, with big business schools still teaching a curriculum that starts with The Wealth of Nations and doesn’t much update from there, there are all too many stock analysts and pundits out there pushing share buybacks as good corporate governance. Returning Capital to Shareholders The gold standard of returning capital to shareholders is paying cash dividends. There is a catch though. You can’t use accounting to create cash that you pay out. The other catch is that shareholders don’t like it when you cut a cash dividend once you start paying it. In other words, if you are going to pay a cash dividend, you better really be in a good position. Share Buybacks Wasting Money Enter share buybacks. A share buyback is where a company takes the extra cash it has and instead of paying a cash dividend, which it can’t play around with, it buys back its own shares. A share buyback is supposed to happen when a company feels its shares are undervalued. That isn’t what really happens anymore. …

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Baker Hughes Stock Buyback from GE

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opec deal stocks

So, weird little bit of financial news today. There are a couple of moving parts, so let’s get those out of the way first. Last summer in July 2020, GE announced that intended to “fully monetized” its stake in Baker Hughes over the next three years. Fully monetize is lingo for sell. Earlier this year, GE said it sold $1 billion worth of Baker Hughes during the second quarter. GE also announced that it planned to sell another $1.3 billion worth of BKR during the third quarter. That brings us up to date. Baker Hughes announces a $2 billion stock repurchase program In part, the idea behind the share buyback is that Baker Hughes is using some of the profits it has reaped recently thanks to a recovering economy and a carefully controlled quota by OPEC. Buying $2 billion worth of stock would essentially soak up the $2 billion that GE is selling right now. In a world where supply and demand are the only factors that impact a stock’s price, GE’s selling would be pushing the price of BKR down. You can kind of see that in the April to May dip in BKR. Assuming that BKR sold its …

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5 Keys to 2021 Stock Market Predictions

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stock market predictions crystal ball

The 2021 stock market predictions will start flowing from the pens of the financial media as the end of 2020 fades into the background. There can be no question that stocks are pricing in a very happy new year. Does that make it a bubble? I think the better question is to understand what is holding up the market. The following tenants are why this market keeps going higher. If any one of them falls apart, then the market gets on shakier ground, and investors will start looking for an exit, whether in a nice, methodical path, or a bubble-bursting flee for the exits based upon how quickly the pillars crumble. What’s Holding Up The Stock Market? 5 Keys to Stock Market Predictions Low Interest Rates – The irony is that the economy is very shaky, and everyone including the Fed knows it, that’s why interest rates are at zero. These low rates are a key to propping up the market. Coronavirus Improvement – Look, the U.S. can’t do any worse with Covid than it did in 2020. Between the federal government just ignoring the whole thing, and the states opening and closing randomly, the U.S. Covid response was about …

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Apple Earnings Dividends and Stock Split

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Apple is one of those companies that draws more than its fair share of attention. There are both the so-called fanboys, and plenty of haters out there to talk at high volume whenever the company does anything. However, the company is also a key component of the S&P 500 and most NASDAQ indexes. In other words, what Apple does as a publicly traded company matters to your personal finance. Apple 2014 Q2 Earnings You’ve probably seen the news by now. Apple had what many analysts are calling a blockbuster quarter. In particular, analysts were surprised by the increase in Apple’s revenue for the quarter. In a way, this is just further proof that analysts don’t really have any sort of crystal ball that regular investors don’t. Apple long ago stopped giving guidance to Wall Street. Without that guidance, Wall Street really doesn’t have a clue how things are going for Apple beyond what things like channel checks can tell them. If you want to read about Apple’s second quarter earnings, there are several reasources including Marketwatch, and Apple’s investor relations website. However, for long-term investors in Apple stock, the quarterly earnings are not the story. What is the story is …

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Are Share Buybacks Really Good For Shareholders?

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IBM released their quarterly earnings. As is customary, the company announced various financial numbers like how much it earned per share and how much revenue it generated for the quarter, and so on. As is customary for IBM, the company also announced yet another giant share repurchase using shareholder money to buyback IBM shares of stock. The idea of a stock buyback is that the company figures that its stock is undervalued on the stock market. By buying shares of stock at those low prices, the corporation is increasing shareholder value by making a good investment in itself. Theoretically, those shares repurchased by the company at a low price can be used to pay out earned stock options, for example, at a lower cost. But, IBM — along with many other companies — has perverted the concept of a share repurchase or stock buyback. IBM Stock is currently trading near an all-time high stock price. While, it is possible that even at that price per share the company believes its shares are undervalued, that is not what is really going on here. IBM Stock Buybacks Share Repurchase Run Amok IBM is not a “new” tech company like Microsoft, Google, Amazon, …

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