No. of Recommendations: 4
As much as I hate having an involuntary taxable event inflicted on me quarterly in the form of a dividend, at least that money -- which was, let's not forget, mine to begin with -- is now out of the grubby hands of managers. I get to choose where and when to reinvest it.
I wonder do you also have a similar choice (with some effort) in the case of buybacks at elevated prices. I'm not 100% sure if this is correct, but consider the following (ignoring taxes).
Company is worth 100B but has market cap of 200B and you own 1% of the shares. The company has 1B cash that they want to allocate to either dividends or buybacks.
Scenario 1: They pay it out as a dividend.
Company is now worth 99B.
Your holding is has a value (not price) of 0.99B
You have 10M cash.
Scenario 2: Company spends it buying 0.5% of their shares back and you immediately sell 0.5% of your holding at the same (double value) price.
Company is now worth 99B
You still own 1% since both the number of shares you own and the total number of shares in the company have reduced by 0.5%.
Your holding is has a value (not price) of 0.99B
You have 10M cash.
So it seems to me that by taking some initiative, you can have exactly the same result (ignoring taxes) and for some when taxes are considered, an even better result.
I do appreciate that most of us don't and won't take this initiative, but it is an option if you really dislike overpriced buybacks.
StevnFool
