Dod101 wrote:GoSeigen wrote:
Of course div per share increases; that's why the price is higher. However, the market cap (DCF of all cashflows) does not increase. Share price on its own is not a measure of the value of a company!
If you hold a company's shares and the company in turn is buying its own shares and you continue holding then by your own definition the company is buying at a good price (i.e. you think the price is still not high enough to sell). I have considered this very question with my holdings of BP and LLOY: I have come to the conclusion that I am actually satisfied for those companies to be "reinvesting" my dividends for me at current prices.
The dividend per share does not 'of course' increase.
The whole paragraph should have been read as a whole. When I said of course div per share increases, it meant that the future dividends to be paid would be shared among fewer shares. The dividend might not be immediately increased by the board, but it will have to be at some point in order to maintain total dividend payments at their original level. Doesn't really matter whether that happens at the next div declaration or some future one: the fact that it will be is priced in immediately.
It might but not necessarily; the company might decide to hold the dividend and so the dividend costs it less in the aggregate. It will probably be a marginal increase in any case, unless it is a truly massive buyback (relative that is to the total number of shares in issue) I do not think I ever claimed that the market cap increased and in any case it is usually used as a definition for the aggregate price of all outstanding shares, so it might even fall because there is no pro rata or automatic increase in the share price as a result of a share buyback.
On your second point above, I think with respect that your comment is just a bit too glib. I will sometimes continue to hold a share even if I think the price is a bit 'toppy' because I might think that events will soon catch up with it. But I would hope that the FD will have done his own calculations and decided if his company's shares are worth buying in at the current market price because if it is known that the Company is standing in the market with an open chequebook, prices might rise anyway so he has to be especially careful.
Glib or not, it's the way I think. I as investor must take responsibility for all. If the company is buying the shares at a price I think is unreasonable, why would I not reduce my own holding in response? I'm not saying everyone does this as an immediate knee jerk, but in aggregate, if you consider all the shareholders this is effectively what happens.