Eric Nuttal, Canadian O&G mutual fund investor, with substantial assets generally favours share buybacks. Is this because he needs a buyer of shares for his holdings. Dividends provide the ultimate flexibility for individual share holders who then can decide to take the cash dividend and buy more stock if they choose. Michael can you have a discussion with Eric?
Eric benefits from higher prices since his compensation is partly tied to assets under management, and he does not benefit from dividends which reduce share prices by the amount of the dividend. All asset managers prefer buybacks despite the reality that they come at the expense of the beneficiaries of the funds. I don't remember Eric promoting buybacks when ARC Resources was around $3 a share, Birchcliff was under $1, or Athabasca was a dime. Eric, who is a great analyst, knows which side his bread is buttered on.
Hi Michael new investor and just trying to understand more about the share buybacks. Wouldn’t they also benefit investors because after the share buybacks there are less outstanding shares so if a company pays out same amount of money for dividends the remaining shareholders would get a higher payout amount? Or am I misunderstanding something. Thanks
That would depend on future dividends. Basically, those selling into the buyback get the money, those who hold are betting the company will prosper. Those who took the money have zero risk of losing, while those who hold carry the risks and reward of future profits. If the company is buying back shares where the implied return is greater than the company's typical ROCE, the buyback benefits those who keep their shares. History has shown that to be less common. McKinsey did a large study of the buyback phenomenon and concluded the issue was nuanced.
We pay managers to find investment opportunities that offer a decent return on capital. When the best they can do is buy back their own shares, it is often best to sell. Buybacks might improve short term share prices but long term investors are less interested in short term price swings than in long term streams of dividends. The paradox is that management wants to increase the share price which benefits them (RSU's, stock options, etc.) and asset managers (higher AUM's and higher fees) while investors (owners of the business) benefit from lower share prices since they can buy a larger interest for less money. The fixation with share prices is an obsession of traders but of little concern to those who own companies they see as having good long term prospects regardless of the trading price of the shares at any point in time.
Eric Nuttal, Canadian O&G mutual fund investor, with substantial assets generally favours share buybacks. Is this because he needs a buyer of shares for his holdings. Dividends provide the ultimate flexibility for individual share holders who then can decide to take the cash dividend and buy more stock if they choose. Michael can you have a discussion with Eric?
Eric benefits from higher prices since his compensation is partly tied to assets under management, and he does not benefit from dividends which reduce share prices by the amount of the dividend. All asset managers prefer buybacks despite the reality that they come at the expense of the beneficiaries of the funds. I don't remember Eric promoting buybacks when ARC Resources was around $3 a share, Birchcliff was under $1, or Athabasca was a dime. Eric, who is a great analyst, knows which side his bread is buttered on.
Hi Michael new investor and just trying to understand more about the share buybacks. Wouldn’t they also benefit investors because after the share buybacks there are less outstanding shares so if a company pays out same amount of money for dividends the remaining shareholders would get a higher payout amount? Or am I misunderstanding something. Thanks
That would depend on future dividends. Basically, those selling into the buyback get the money, those who hold are betting the company will prosper. Those who took the money have zero risk of losing, while those who hold carry the risks and reward of future profits. If the company is buying back shares where the implied return is greater than the company's typical ROCE, the buyback benefits those who keep their shares. History has shown that to be less common. McKinsey did a large study of the buyback phenomenon and concluded the issue was nuanced.
We pay managers to find investment opportunities that offer a decent return on capital. When the best they can do is buy back their own shares, it is often best to sell. Buybacks might improve short term share prices but long term investors are less interested in short term price swings than in long term streams of dividends. The paradox is that management wants to increase the share price which benefits them (RSU's, stock options, etc.) and asset managers (higher AUM's and higher fees) while investors (owners of the business) benefit from lower share prices since they can buy a larger interest for less money. The fixation with share prices is an obsession of traders but of little concern to those who own companies they see as having good long term prospects regardless of the trading price of the shares at any point in time.
https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/the-value-of-share-buybacks