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How best to return cash to shareholders?

Discuss Stock buying Shares, tips and ideas for stock market dealing
GoSeigen
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Re: How best to return cash to shareholders?

#473249

Postby GoSeigen » January 15th, 2022, 10:32 am

Padders72 wrote:On the basis of Jam today vs Jam tomorrow I’d rather have a nice fat special div rather than buybacks with a theoretical benefit personally but I recognise that everyone’s tax situation and therefore preference differs.


Wow, how did you invest in the first place then, because investment is the very definition of jam tomorow in exchange for forgoing jam today!?

GS

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Re: How best to return cash to shareholders?

#473252

Postby NotSure » January 15th, 2022, 10:47 am

Padders72 wrote:On the basis of Jam today vs Jam tomorrow I’d rather have a nice fat special div rather than buybacks with a theoretical benefit personally but I recognise that everyone’s tax situation and therefore preference differs.


Well simply sell the same proportion of your holding that was bought back by the company. After his transaction, you will still own exactly the same percentage of the company, but also have cash in your account.

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Re: How best to return cash to shareholders?

#473262

Postby TheMotorcycleBoy » January 15th, 2022, 11:39 am

I have stated this previously in the ULVR thread, and will we repeat my views now. The reason why I find BBs of biggest detriment is that they concentrate in the Financial Service Industry and in the pockets of rich execs. The FSI sees share buybacks as an interaction between an investment bank (e.g. UBS) and a firm (e.g. ULVR).

The sum paid by the firm will include broker fees and a portion above the average share price as determined by the bid/offer spread. Since the initial buying of the stock came from the firm not regular investors, this activity was outside of general market activity, hence the fees/spreads derived were not part of natural investor sentiments for this particular firm.

Furthermore the FSI banks have close relationships with each other, attend events with one other, have mutually agreeable commision arrangements etc. And of course a portion of these fees, spreads will be recycled in the higher echelons in other asset purchases (some of high risk, possibly requiring a subsequent tax payer bail out when they crash, in the case of the GFC) and bonuses. Since the original bank (UBS in this case) may now be underweight in ULVR they will contact associate banks to top up their holdings, so the original purchase by ULVR generates several more fee/spread value extractions.

We all know that the execs of the firms benefit when EPS figures rise and they receive a large pay rise. So there's little pointing dwelling on this, except to mention that in paying their salaries, more of the firm's profit move to people who are already v rich, possibly for them spend on financial assets etc. etc.

Many believe that the circumstances resulting from the above are harmful to all since our societys' existing wealth gaps are exacerbated. This is bad not only for generating high levels of malcontent and internal disorder (Trumpism in the US and the Yellow Vest movement in France did not occur in a vacuum), it also result in less of the nations wealth being held by poorer people, who are those who tend to spend on consumer goods (e.g. those produced by Next, Burberry, Unilever, Reckitts etc.), and hence the very firms in which we are invested in make less profits, and suffer from poor growth.

Matt

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Re: How best to return cash to shareholders?

#473265

Postby TheMotorcycleBoy » January 15th, 2022, 11:44 am

NotSure wrote:
Padders72 wrote:On the basis of Jam today vs Jam tomorrow I’d rather have a nice fat special div rather than buybacks with a theoretical benefit personally but I recognise that everyone’s tax situation and therefore preference differs.


Well simply sell the same proportion of your holding that was bought back by the company. After his transaction, you will still own exactly the same percentage of the company, but also have cash in your account.

You forgot to point out that Padders72's asset sale will incur a broker fee, and will receive a reduced price for the sold shares due to the spread. P72 won't see these on receipt of a div.

That's certainly why I aim to compound my returns by the reinvesting dividends rather than extraction of profit from selling held shares.

Matt

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Re: How best to return cash to shareholders?

#473277

Postby NotSure » January 15th, 2022, 12:15 pm

TheMotorcycleBoy wrote:
NotSure wrote:
Padders72 wrote:On the basis of Jam today vs Jam tomorrow I’d rather have a nice fat special div rather than buybacks with a theoretical benefit personally but I recognise that everyone’s tax situation and therefore preference differs.


Well simply sell the same proportion of your holding that was bought back by the company. After his transaction, you will still own exactly the same percentage of the company, but also have cash in your account.

You forgot to point out that Padders72's asset sale will incur a broker fee, and will receive a reduced price for the sold shares due to the spread. P72 won't see these on receipt of a div.

That's certainly why I aim to compound my returns by the reinvesting dividends rather than extraction of profit from selling held shares.

Matt


How do you avoid an identical fee when reinvesting dividends? I guess you can pool, but regarding buy backs, we're talking one-offs.

Anyway, my point was intended to be that IMHO, say, a 10% special divi and a 10% buy back are the same thing, give or take. Especially if you reinvested the special divi in more shares in that company! The buy back just gives you the option of taking the cash, or increasing your stake with no frictional costs.
Last edited by NotSure on January 15th, 2022, 12:24 pm, edited 1 time in total.

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Re: How best to return cash to shareholders?

#473279

Postby GeoffF100 » January 15th, 2022, 12:20 pm

Padders72 wrote:On the basis of Jam today vs Jam tomorrow I’d rather have a nice fat special div rather than buybacks with a theoretical benefit personally but I recognise that everyone’s tax situation and therefore preference differs.

Aside from the number of shares over which your shareholding is split, a buyback has the same effect as reinvesting your dividend. You end up with a bigger share of the company instead of cash in hand. That is not just a theoretical benefit. You may not want a bigger share of the company if you think that your share is big enough already, but that is another matter.

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Re: How best to return cash to shareholders?

#473282

Postby GeoffF100 » January 15th, 2022, 12:31 pm

TheMotorcycleBoy wrote:The sum paid by the firm will include broker fees and a portion above the average share price as determined by the bid/offer spread. Since the initial buying of the stock came from the firm not regular investors, this activity was outside of general market activity, hence the fees/spreads derived were not part of natural investor sentiments for this particular firm.

Buybacks will be trickled into the market over a period of time, to avoid pushing the share price up. Buybacks do have small costs, but they also save lots of people a lot of tax. They are certainly more cost effective than receiving a dividend an reinvesting it in the same company yourself.

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Re: How best to return cash to shareholders?

#473286

Postby GoSeigen » January 15th, 2022, 12:58 pm

TheMotorcycleBoy wrote:I have stated this previously in the ULVR thread, and will we repeat my views now. The reason why I find BBs of biggest detriment is that they concentrate in the Financial Service Industry and in the pockets of rich execs.
[etc]


Dod1's response on that thread was telling:

Dod101 wrote:Frankly I think your comments are a nonsense. Unless they were buying the shares via a tender they have no idea who is doing the selling. Do you really think that a company like Unilever would in effect be greasing the palms of their mates? If you have evidence of that why not report it to the authorities?


MCB is entitled to his opinion but on this topic I think a great pinch of salt is called for.

Posters like Dod1, GeoffF100 and dealtn have an incredible wealth of experience and expertise; any reader would benefit from taking their comments to heart.

GS

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Re: How best to return cash to shareholders?

#473299

Postby TheMotorcycleBoy » January 15th, 2022, 2:06 pm

GoSeigen wrote:
TheMotorcycleBoy wrote:I have stated this previously in the ULVR thread, and will we repeat my views now. The reason why I find BBs of biggest detriment is that they concentrate in the Financial Service Industry and in the pockets of rich execs.
[etc]


Dod1's response on that thread was telling:

Dod101 wrote:Frankly I think your comments are a nonsense. Unless they were buying the shares via a tender they have no idea who is doing the selling. Do you really think that a company like Unilever would in effect be greasing the palms of their mates? If you have evidence of that why not report it to the authorities?


MCB is entitled to his opinion but on this topic I think a great pinch of salt is called for.

Posters like Dod1, GeoffF100 and dealtn have an incredible wealth of experience and expertise; any reader would benefit from taking their comments to heart.

GS

I totally agree with you, that Dod, Geoff, dealtn have a great deal of experience and expertise. I continue to read their posts and consider their views dispassionately.

Dod101 wrote:Frankly I think your comments are a nonsense. Unless they were buying the shares via a tender they have no idea who is doing the selling. Do you really think that a company like Unilever would in effect be greasing the palms of their mates? If you have evidence of that why not report it to the authorities?

I actually considered Dod's earlier post a little melodramatic. Unlike UBS's (and a large number of other IBs) dabbling in the Libor rate see the Spider Network, I wasn't proposing anything illegal was actually happening re. their participation in ULVR's buyback campaign.

However, it's still definitely possible for legal activities to benefit one portion of the population more than another, and that was what I was at pains to point out.

Finally whilst I know that several here have worked in some part of the FSI, and will have insider knowledge, when I make assertions about fees/spreads passing from one part of the FSI to another, these types of relationship are not only frequently described in investigative literature, but clearly make business sense. That is, participants in one sector, will communicate with members of the same sector, for example in any hardware based industry (e.g. vehicles, semiconductors) buyers and sellers in different companies will maintain close working relationships with one another. It's not underhand, it's just common business sense, and when I made earlier remarks about the FSI it was merely an observation of this type of behaviour, and not a direct stab at the integrity of those individuals.

I hope that this goes in some way to clarify my views.

Matt

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Re: How best to return cash to shareholders?

#473309

Postby Dod101 » January 15th, 2022, 3:27 pm

Hi Matt

I sometimes look back on my posts and think the same as you but sometimes (not very often) I think that some opinions need to be emphasised and if that comes across as melodramatic well........

I am not and never have been any kind of insider in the financial services industry but what I have done is taken a close interest in it for a very long time. Like a number of other subjects, share buybacks tend to polarise opinion, but there is nothing that I can see that is evidently corrupt about the practice. I do not though particularly want to open up this subject again as I think we have pretty well argued through the pros and cons.

Best wishes
Dod

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Re: How best to return cash to shareholders?

#473415

Postby GoSeigen » January 16th, 2022, 6:33 am

TheMotorcycleBoy wrote:However, it's still definitely possible for legal activities to benefit one portion of the population more than another, and that was what I was at pains to point out.

Finally whilst I know that several here have worked in some part of the FSI, and will have insider knowledge, when I make assertions about fees/spreads passing from one part of the FSI to another, these types of relationship are not only frequently described in investigative literature, but clearly make business sense. That is, participants in one sector, will communicate with members of the same sector, for example in any hardware based industry (e.g. vehicles, semiconductors) buyers and sellers in different companies will maintain close working relationships with one another. It's not underhand, it's just common business sense, and when I made earlier remarks about the FSI it was merely an observation of this type of behaviour, and not a direct stab at the integrity of those individuals.

I hope that this goes in some way to clarify my views.

Matt


That certainly sounds more reasonable. Hopefully we all recognise that your first sentence above is pretty much the entire point of investing or at least trying to excel in it. If investment banks are earning some fees for managing a large share purchase on a client's behalf that is absolutely to be expected and right, provided as you say the actions are legal and carried out at arms length. The word corrupt frankly is not one to be used in this context.

Share buybacks as carried out by our FTSE100 companies are 100% legal, in fact they are one of the ONLY ways that public companies may legitimately purchase their own shares, which is normally strictly prohibited.

GS

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Re: How best to return cash to shareholders?

#473419

Postby TheMotorcycleBoy » January 16th, 2022, 7:43 am

GoSeigen wrote:
TheMotorcycleBoy wrote:However, it's still definitely possible for legal activities to benefit one portion of the population more than another, and that was what I was at pains to point out.

Finally whilst I know that several here have worked in some part of the FSI, and will have insider knowledge, when I make assertions about fees/spreads passing from one part of the FSI to another, these types of relationship are not only frequently described in investigative literature, but clearly make business sense. That is, participants in one sector, will communicate with members of the same sector, for example in any hardware based industry (e.g. vehicles, semiconductors) buyers and sellers in different companies will maintain close working relationships with one another. It's not underhand, it's just common business sense, and when I made earlier remarks about the FSI it was merely an observation of this type of behaviour, and not a direct stab at the integrity of those individuals.

I hope that this goes in some way to clarify my views.

Matt

That certainly sounds more reasonable. Hopefully we all recognise that your first sentence above is pretty much the entire point of investing or at least trying to excel in it.

I don't understand the point you are trying to make in the emboldened remark of yours. Furthermore, my key point remains valid; that concentrating more and more wealth in a very small (in terms of the percentage of it's workers vs the entire workplace) part of the economy/population is ultimately to the disadvantage of many of the companies in which some here are invested.

Matt

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Re: How best to return cash to shareholders?

#473437

Postby dealtn » January 16th, 2022, 9:27 am

TheMotorcycleBoy wrote:
GoSeigen wrote:
TheMotorcycleBoy wrote:However, it's still definitely possible for legal activities to benefit one portion of the population more than another, and that was what I was at pains to point out.

Finally whilst I know that several here have worked in some part of the FSI, and will have insider knowledge, when I make assertions about fees/spreads passing from one part of the FSI to another, these types of relationship are not only frequently described in investigative literature, but clearly make business sense. That is, participants in one sector, will communicate with members of the same sector, for example in any hardware based industry (e.g. vehicles, semiconductors) buyers and sellers in different companies will maintain close working relationships with one another. It's not underhand, it's just common business sense, and when I made earlier remarks about the FSI it was merely an observation of this type of behaviour, and not a direct stab at the integrity of those individuals.

I hope that this goes in some way to clarify my views.

Matt

That certainly sounds more reasonable. Hopefully we all recognise that your first sentence above is pretty much the entire point of investing or at least trying to excel in it.

I don't understand the point you are trying to make in the emboldened remark of yours. Furthermore, my key point remains valid; that concentrating more and more wealth in a very small (in terms of the percentage of it's workers vs the entire workplace) part of the economy/population is ultimately to the disadvantage of many of the companies in which some here are invested.

Matt


I don't understand your key point about how buybacks are concentrating more and more wealth in a very small part of the economy. Can you explain it again (hopefully without emotional distraction)?

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Re: How best to return cash to shareholders?

#473441

Postby GoSeigen » January 16th, 2022, 9:40 am

dealtn wrote:I don't understand your key point about how buybacks are concentrating more and more wealth in a very small part of the economy. Can you explain it again (hopefully without emotional distraction)?


i might be wrong but I suspect its derived from some reading, if so a link would be helpful so that we can see what the original arguments and evidence were. As always, if making statements like this its useful to quote an authority.

GS

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Re: How best to return cash to shareholders?

#473515

Postby Dod101 » January 16th, 2022, 1:32 pm

GoSeigen wrote:
dealtn wrote:I don't understand your key point about how buybacks are concentrating more and more wealth in a very small part of the economy. Can you explain it again (hopefully without emotional distraction)?


i might be wrong but I suspect its derived from some reading, if so a link would be helpful so that we can see what the original arguments and evidence were. As always, if making statements like this its useful to quote an authority.

GS


I don't believe the statement anyway. Most share buybacks are made in the open market and I doubt that the buyer acting for the company has any idea where the shares are coming from until the deed is done anyway. Those with a better knowledge of stock market operations will be able to clarify that one way or another I am sure. Matt seems to have the idea that there is some fiendish conspiracy but I do not think that that is the case.

Dod

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Re: How best to return cash to shareholders?

#473527

Postby scrumpyjack » January 16th, 2022, 2:32 pm

Dod101 wrote:
GoSeigen wrote:
dealtn wrote:I don't understand your key point about how buybacks are concentrating more and more wealth in a very small part of the economy. Can you explain it again (hopefully without emotional distraction)?


i might be wrong but I suspect its derived from some reading, if so a link would be helpful so that we can see what the original arguments and evidence were. As always, if making statements like this its useful to quote an authority.

GS


I don't believe the statement anyway. Most share buybacks are made in the open market and I doubt that the buyer acting for the company has any idea where the shares are coming from until the deed is done anyway. Those with a better knowledge of stock market operations will be able to clarify that one way or another I am sure. Matt seems to have the idea that there is some fiendish conspiracy but I do not think that that is the case.

Dod


As I recall the terms of buybacks usually instruct the brokers to limit them to a certain percentage of shares traded each day (perhaps 15%) so as not to distort the market unduly. So it is difficult to see how some fiendish conspiracy would work.

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Re: How best to return cash to shareholders?

#473698

Postby TheMotorcycleBoy » January 17th, 2022, 9:24 am

dealtn wrote:
TheMotorcycleBoy wrote:
GoSeigen wrote:
TheMotorcycleBoy wrote:However, it's still definitely possible for legal activities to benefit one portion of the population more than another, and that was what I was at pains to point out.

Finally whilst I know that several here have worked in some part of the FSI, and will have insider knowledge, when I make assertions about fees/spreads passing from one part of the FSI to another, these types of relationship are not only frequently described in investigative literature, but clearly make business sense. That is, participants in one sector, will communicate with members of the same sector, for example in any hardware based industry (e.g. vehicles, semiconductors) buyers and sellers in different companies will maintain close working relationships with one another. It's not underhand, it's just common business sense, and when I made earlier remarks about the FSI it was merely an observation of this type of behaviour, and not a direct stab at the integrity of those individuals.

I hope that this goes in some way to clarify my views.

Matt

That certainly sounds more reasonable. Hopefully we all recognise that your first sentence above is pretty much the entire point of investing or at least trying to excel in it.

I don't understand the point you are trying to make in the emboldened remark of yours. Furthermore, my key point remains valid; that concentrating more and more wealth in a very small (in terms of the percentage of it's workers vs the entire workplace) part of the economy/population is ultimately to the disadvantage of many of the companies in which some here are invested.

Matt


I don't understand your key point about how buybacks are concentrating more and more wealth in a very small part of the economy. Can you explain it again (hopefully without emotional distraction)?

The instruction from a company to an investment bank to buy its stock generates 1) broker fees 2) broker profits from the spread applicable to a share purchase, which would not have previously existed. In a way similar to when I purchase a bunch of shares from my broker I pay a commission and a slightly disadvantageous price, since the broker charges a slight spread above the theoretical market price.

Had the company issued a dividend instead of buyback I don't think that these fees or profits from spread would have been made.

Does that help you in understanding my point?

Matt

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Re: How best to return cash to shareholders?

#473710

Postby dealtn » January 17th, 2022, 9:53 am

TheMotorcycleBoy wrote:
dealtn wrote:
TheMotorcycleBoy wrote:
GoSeigen wrote:
TheMotorcycleBoy wrote:However, it's still definitely possible for legal activities to benefit one portion of the population more than another, and that was what I was at pains to point out.

Finally whilst I know that several here have worked in some part of the FSI, and will have insider knowledge, when I make assertions about fees/spreads passing from one part of the FSI to another, these types of relationship are not only frequently described in investigative literature, but clearly make business sense. That is, participants in one sector, will communicate with members of the same sector, for example in any hardware based industry (e.g. vehicles, semiconductors) buyers and sellers in different companies will maintain close working relationships with one another. It's not underhand, it's just common business sense, and when I made earlier remarks about the FSI it was merely an observation of this type of behaviour, and not a direct stab at the integrity of those individuals.

I hope that this goes in some way to clarify my views.

Matt

That certainly sounds more reasonable. Hopefully we all recognise that your first sentence above is pretty much the entire point of investing or at least trying to excel in it.

I don't understand the point you are trying to make in the emboldened remark of yours. Furthermore, my key point remains valid; that concentrating more and more wealth in a very small (in terms of the percentage of it's workers vs the entire workplace) part of the economy/population is ultimately to the disadvantage of many of the companies in which some here are invested.

Matt


I don't understand your key point about how buybacks are concentrating more and more wealth in a very small part of the economy. Can you explain it again (hopefully without emotional distraction)?

The instruction from a company to an investment bank to buy its stock generates 1) broker fees 2) broker profits from the spread applicable to a share purchase, which would not have previously existed. In a way similar to when I purchase a bunch of shares from my broker I pay a commission and a slightly disadvantageous price, since the broker charges a slight spread above the theoretical market price.

Had the company issued a dividend instead of buyback I don't think that these fees or profits from spread would have been made.

Does that help you in understanding my point?

Matt


A company might have 10,000 shareholders. A buyback might involve 500 of those. 500 X £20 = £10,000 hardly likely to amount to huge change in wealth distribution (and who owns that bank and benefits anyway - mostly pension funds, so ultimately ordinary people).

A company instead chooses to distribute as a dividend. Do you think there are zero charges on payment processing? Even if these were charged at as low as 10p per transaction that's £1,000 (and repeated 2 - 4 times a year). Does that £1,000 count as a redistribution of wealth too?

I think you are getting somewhat desperate in your arguments against buybacks if you think concentration of wealth is even worth considering.

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Re: How best to return cash to shareholders?

#473726

Postby TheMotorcycleBoy » January 17th, 2022, 10:31 am

dealtn wrote:
TheMotorcycleBoy wrote:
dealtn wrote:
TheMotorcycleBoy wrote:
GoSeigen wrote:That certainly sounds more reasonable. Hopefully we all recognise that your first sentence above is pretty much the entire point of investing or at least trying to excel in it.

I don't understand the point you are trying to make in the emboldened remark of yours. Furthermore, my key point remains valid; that concentrating more and more wealth in a very small (in terms of the percentage of it's workers vs the entire workplace) part of the economy/population is ultimately to the disadvantage of many of the companies in which some here are invested.

Matt


I don't understand your key point about how buybacks are concentrating more and more wealth in a very small part of the economy. Can you explain it again (hopefully without emotional distraction)?

The instruction from a company to an investment bank to buy its stock generates 1) broker fees 2) broker profits from the spread applicable to a share purchase, which would not have previously existed. In a way similar to when I purchase a bunch of shares from my broker I pay a commission and a slightly disadvantageous price, since the broker charges a slight spread above the theoretical market price.

Had the company issued a dividend instead of buyback I don't think that these fees or profits from spread would have been made.

Does that help you in understanding my point?

Matt


A company might have 10,000 shareholders. A buyback might involve 500 of those. 500 X £20 = £10,000 hardly likely to amount to huge change in wealth distribution (and who owns that bank and benefits anyway - mostly pension funds, so ultimately ordinary people).

A company instead chooses to distribute as a dividend. Do you think there are zero charges on payment processing? Even if these were charged at as low as 10p per transaction that's £1,000 (and repeated 2 - 4 times a year). Does that £1,000 count as a redistribution of wealth too?

I think you are getting somewhat desperate in your arguments against buybacks if you think concentration of wealth is even worth considering.

I'm not getting desperate :lol:. It merely seemed from your earlier line of questioning that I needed to clarify my points. Which remain valid.

Matt


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