How would you do that? Companies just go into the market and you can't tell it is a buyback until they report. Then you must sell at a different price than the buyback, another element of timing risk, and you are reduced to odd lots to keep the same proportional ownership. I just avoid the problem by staying away from companies that prefer buybacks to dividends. That is why I don't hold any MEG today despite its intrinsic value. My life is simpler. I buy $BIR $WCP $PEY at less than $1 a share; $SDE at less than $5 a share, and collect dividends for years to come with little market risk since I don't have any plans to sell and likely never will.
Buybacks reported monthly, no? And it's not like you have to keep your ownership to the exact % anyways, can just round off to 100 shares or something so not sure why odd lot is an issue?
But buybacks/dividends are functionally equivalent return of capital, importantly **except for taxes**.
Consider this. I'm keeping it simple. Just assume a stock you like where you will "collect dividends for years to come" and "have no plans to sell". Let's say it's up huge (10x! 30x!) over a bunch of years with lots of dividends. But crucially, before it goes up on an amazing run of appreciation, *it's share price is flat for a year*. Share price is 100.
In the first year, they do a 5% buyback and stock ends at 100. You sell your 5% into the buyback and now have $5. You pay no tax (shares didn't appreciate, no cap gain). And then for the next 20 years, it's an amazing stock that only pays dividends and no more buybacks...So your total return is stock appreciation + 20 years of amazing dividends + $5. That $5 compounds for 20 years, either in this stock or another amazing pick alongside it.
Same story, but they pay a 5% dividend in the first year. *You pay tax on the dividend in that first year*. Once again, don't know Canada tax law well vs. the U.S. but let's just say it's 25% (I think you only pay tax on 50% etc etc and lots of complicated rules but generally you do owe taxes on dividends whereas in the first case you def don't since no capital gain). So now you have $3.75. So same 20 years of amazing dividends + $3.75 compounded for 20 years.
There is no guarantee either strategy is "better". I avoid buybacks, prefer dividends, and rarely sell any shares. It is that simple. I hold a lot of investments in non-taxable accounts (RIF, TFSA) but I don't mind paying taxes. Society depends on them.
I am typically fully invested but for a percentage I keep in cash for market crashes so that I can take advantage of depressed prices. Without a stream of dividends I would have to compromise my market reserve or sell something to follow your strategy. No thanks.
I hope your investments work well for you. Mine work well for me.
Your personal view mirrors mine and the thousands of investors who were quite happy with the Canadian Oil and Gas Trusts. Of course this was back before Harper and Flaherty killed them in 2006, at the behest of their Jack Mintz' academic cover, funded by corporate political contributors who were afraid they could not compete with trusts giving so much cash flow to actual owners.
Could Bell be worse if they had converted to a Trust? They did spin off their low growth business in the Maritimes (and Yellow Pages) into Trusts....
Buybacks give cash flow to sellers.
Dividends provide cash flows to those willing to remain shareholders.
Agree. I miss the income trust days which were a benefit to Canada and the late Jim Flaherty was a personal friend. Killing the income trusts was a triumph of ideology over common sense.
Can't you just sell shares into the buyback (keeping proportional ownership the same or even reducing if you want) and decide how much risk to take?
How would you do that? Companies just go into the market and you can't tell it is a buyback until they report. Then you must sell at a different price than the buyback, another element of timing risk, and you are reduced to odd lots to keep the same proportional ownership. I just avoid the problem by staying away from companies that prefer buybacks to dividends. That is why I don't hold any MEG today despite its intrinsic value. My life is simpler. I buy $BIR $WCP $PEY at less than $1 a share; $SDE at less than $5 a share, and collect dividends for years to come with little market risk since I don't have any plans to sell and likely never will.
Buybacks reported monthly, no? And it's not like you have to keep your ownership to the exact % anyways, can just round off to 100 shares or something so not sure why odd lot is an issue?
But buybacks/dividends are functionally equivalent return of capital, importantly **except for taxes**.
Consider this. I'm keeping it simple. Just assume a stock you like where you will "collect dividends for years to come" and "have no plans to sell". Let's say it's up huge (10x! 30x!) over a bunch of years with lots of dividends. But crucially, before it goes up on an amazing run of appreciation, *it's share price is flat for a year*. Share price is 100.
In the first year, they do a 5% buyback and stock ends at 100. You sell your 5% into the buyback and now have $5. You pay no tax (shares didn't appreciate, no cap gain). And then for the next 20 years, it's an amazing stock that only pays dividends and no more buybacks...So your total return is stock appreciation + 20 years of amazing dividends + $5. That $5 compounds for 20 years, either in this stock or another amazing pick alongside it.
Same story, but they pay a 5% dividend in the first year. *You pay tax on the dividend in that first year*. Once again, don't know Canada tax law well vs. the U.S. but let's just say it's 25% (I think you only pay tax on 50% etc etc and lots of complicated rules but generally you do owe taxes on dividends whereas in the first case you def don't since no capital gain). So now you have $3.75. So same 20 years of amazing dividends + $3.75 compounded for 20 years.
$5 vs. $3.75.
How is the 2nd one better?
There is no guarantee either strategy is "better". I avoid buybacks, prefer dividends, and rarely sell any shares. It is that simple. I hold a lot of investments in non-taxable accounts (RIF, TFSA) but I don't mind paying taxes. Society depends on them.
I am typically fully invested but for a percentage I keep in cash for market crashes so that I can take advantage of depressed prices. Without a stream of dividends I would have to compromise my market reserve or sell something to follow your strategy. No thanks.
I hope your investments work well for you. Mine work well for me.
Your personal view mirrors mine and the thousands of investors who were quite happy with the Canadian Oil and Gas Trusts. Of course this was back before Harper and Flaherty killed them in 2006, at the behest of their Jack Mintz' academic cover, funded by corporate political contributors who were afraid they could not compete with trusts giving so much cash flow to actual owners.
Could Bell be worse if they had converted to a Trust? They did spin off their low growth business in the Maritimes (and Yellow Pages) into Trusts....
Buybacks give cash flow to sellers.
Dividends provide cash flows to those willing to remain shareholders.
Agree. I miss the income trust days which were a benefit to Canada and the late Jim Flaherty was a personal friend. Killing the income trusts was a triumph of ideology over common sense.