Shares buyback good or bad ?

I have seen quite a lot of post that focuses on dividend alone. A lot of US companies do not give out a large percentage of dividend due to the tax law. Thus most of these companies are being shunned away from dividend hunters.

So how then do we determine the shares buyback to be good or bad?

The answer is not very straight forward - I think it should depend on a few factors.

1) Has the company allocated enough CAPEX to widen it defensive moat?

2) Can the capital be used to allocate into some other areas to create a higher return instead of from the shares buyback?

3) Is the buyback below its intrinsic value?

4) Are the buyback using FCF or by taking up more debts for the buyback ?


If the above conditions are met I think a share buyback is good for shareholders in the long run.
shareholders derive their return from capital appreciation and dividend return forming the total return component.

over a 5+ years period, Apple has destroyed  1.73 billion shares. or 26.6% of the initial shares count.
As such in an efficient market. The share price should have increased by 20+ percent over the same period assuming the cashflow produce are the same. If we take the peak price of about 90 dollars in the year 2012  the price is close to double.

Apple current dividend yield is about 1+% before tax. should the buyback continue at a similar pace from the past the total return from buyback and dividend should be in the range of 6-7%

However the above is not so straight forward as the market is very dynamic, constant analyzing the business fundamentals and the financial statement is a must to monitor the stock going forward.

*note I have holdings in the above stock mentioned and the view above should not be taken as a buy call for Apple shares.

Disclaimer

1) This Blog is intended only for the use of personal portfolio tracking and sharing of ideas. All the investment advice or stocks picks shared shall be view as only my personal opinion only. I do not warren the truth or accuracy of the information shared and likewise all investment activities made should be consulted by your personal financial advisor as I do not have an understanding on your investment objective nor your investment Risk appetite as such I shall not be liable for any of your losses whatsoever howsoever should you decide to invest in any investment ideas or stocks discussed in this blog.