Keep in mind, the shareholders are not the only stakeholders. What of the people who work there? What of the company’s creditors? In the PE model, everyone, except for the PE company, gets worked over in the bankruptcy that follows hollowing out the company.
Steve
The shareholders are the ONLY ones that matter. Not PE. Employees, creditors, management, etc–all have to “take their chances”–just like the shareholders. If management can NOT keep the shareholders happy, that it is up to the shareholders to decide what to do next.
Apple already pays a dividend. The beauty of the buyback is that it is a way to deliver shareholder appreciation without tax consequences. Apple’s share price has moved up 8X since 2016 without any tax consequence to shareholders. Additionally, an investor should want monies in companies generating high rates of ROI. The last thing you want to do is lose that through unnecessary tax consequences of a special dividend.
Are you opposed to buybacks on any and all grounds?
You do understand that apple employees get enormously enriched by profit sharing in the for stock and its continued appreciation? It makes millionaires there of everyday workers over the long haul.
Yes. Giving the funds to the shareholders is right–because it is “THEIR MONEY”. Sound familiar?
If they want to reinvest with Apple, they may do so. Their choice.
But I am a shareholder and I want them to use an all the above strategy in terms of capital allocation. I gave them my money in the first place for the purpose of maximizing the value, why would I want to take that back?
Taking back the funds and reinvesting with Apple, does not put the capital back in the company, unless it comes in the form of additional share issuance
Do you not see the value in the uninterrupted compounding of share value by not paying taxes on unnecessary distributions by the company?
So did Enron employees, etc–until it did NOT. Let the shareholders decide, not management.
Shareholders have decided by the continuing support of Tim Cook and the Board’s current capital allocation strategy.
If they wanted Apple to pay more in dividends, they could pressure the board to do so.
. Is it your position that no company should have the right to buyback shares?
Nothing stops a shareholder from continuing his/her invesment. Their choice–nobody else’s. It is not “tax free”–never has been. Tax deferred would be the better term. The shareholders are “locked in” until they choose to sell. They have no alternative to pay taxes. The only question is “when”, not “if”.
Each shareholder can decide by selling any or all of the shares. You see that’s the beauty of it. They can opt in or out by selling as the shares appreciate, versus everyone has to accept a distribution under a dividend program. Businesses fail, it is the inherent risk of investing.
Yes. It is the shareholders’ money. Let them use it as they choose.
I never said it was tax free. The appreciation through buybacks though comes without tax consequences, assuming one does not sell shares.
If the shareholders are endorsing buybacks, which is what is happening with Apple, shouldn’t the company do what the shareholders are asking for?
How it would be taxed would need to be determined if all businesses were to pay out income to shareholders. A lot MORE cash would be sent to shareholders because management would not be able to demand mega-bucks in compensation via stock options (which drain LOTS of cash from all businesses). It would fix the problem with Musk, for example. Lots of others, as well. Buffett would love it because he knows what keeps bringing more investors into Berkshire. People would re-invest every opportunity they had (if they could).
I read back to the beginning of the post. I guess this is really about wealth inequality. It’s odd to me since regardless of how many shares you own, each shareholder gets the same % increase in value. It’s an odd position to me, since uninterrupted compounding of value is one of the best ways for someone to build wealth.
I don’t think you understand the enormous cash drain that your strategy would cause to a business. Musk’s package is about corporate governance not buybacks.
Buffett is a huge proponent of buybacks. So much so, Berkshire has never paid a single dividend. Why do you think 40% of Berk’s value is attributed to its stake in Apple? I’m not following the logic.
It used to be illegal for a company to buy back stock!
JimA
But it is legal now. Since it is, shouldn’t management avail themselves of every legal strategy to effectively allocate excess capital. Do you find something unethical or immoral about buybacks. I realize any strategy is prone to misuse by unscrupulous management. But for managers operating in their shareholder’s best interest, why should it not be one to be considered?
Shareholders’ money being diverted to profit management. If no profit for them, they would do…what?