Catch up with last Tuesday's investor webinar which featured Greatland Gold, Poolbeg Pharma, Helium One and Rainbow Rare Earths. Watch here.
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I hope you are right, Casapinos, but that could be Reuters interpretation rather than a direct quote.
Like you, I was confident about my understanding of the word but, as Investopedia says:
‘Typically, companies can return wealth to shareholders through stock price appreciations, dividends, or stock buybacks. In the past, dividends were the most common form of wealth distribution. However, as Corporate America becomes more progressive and flexible, a fundamental shift has occurred in the way companies deploy capital.
Instead of traditional dividend payments, buybacks have been viewed as a flexible practice of returning excess cash flow.’
I personally regard it as a misuse of the word but it seems that it is probably legitimate.
While i Know it won't convince those who don't understand the dictionary definition of "distribution" please see this,
and particularly this para.
"Shell will return $7 billion of the proceeds to shareholders as dividends on top of existing commitments, with the rest going to pay down debt, it said. Conoco also announced it would increase quarterly cash payments to shareholders by 7% from Dec. 1.
Longterminvestor: You are entirely correct - but increased percentage of ownership is just half of the equation. One also needs to know by how much the value of the company (and I don't mean the market cap) has changed. Does anyone here know with certainty that RDS is making a profit on the Permian deal and what that profit is? If RDS are selling Permian for less than its book value then the 'distribution' is a negative number.
That’s exactly my thoughts.
I know it’s good for us short term but This energy crisis is becoming a real global problem now and could cause big inflation which is bad for everyone including Shell……
I’m sure that Nord pipeline will kick in soon which will help and of course we are investors in…..
"Cant see any point in just taking the money out of the company. No sense at all."
NSS, investors love a 'special' dividend (me too)....buy-backs less so. But you have a point. Selling off assets and then NOT investing in the business means that the company reduces in value. Perhaps the management don't need the cash for their transition plan, but equally it is what companies do when they are winding down, sell off assets and distribute the proceeds.
Slightly worrying if they distribute all the 7 billion because it could mean the management don't have any meaningful plan for a green future. There must be ways of using some of the money on green projects, research and/or start-ups.
''it’s a bit of a stretch to call buybacks a ‘distribution’ unless that distribution can be measured and reported.''
Any shareholder can note the percentage reduction in the number of shares that has occurred (reported) at the end of a buyback programme. This will give a measurement of the increased percentage of ownership of the company by an individual investor retaining their shares.
Totally agree with you I like to have the cash and decide for myself where to put it like most PIs I’m sure.
NSS : I don't many Buybacks ? If that should have been 'I don't want Buybacks.' plus the others in the list , then I'm with you 100%
I don't many Buybacks.
I don't want a dividend.
I don't want to pay down debt.
There will be more than enough from Q3 Results for those.
I want to spend the bloody lot...Invest in our gas business and into our clean energies businesses.
Cant see any point in just taking the money out of the company. No sense at all.
My thanks to all who responded in this thread.
Apart from the specific circumstances when the market price is very significantly and demonstrably below the true value of the stock so that buybacks clearly represent exceptional value to the company and the remaining shareholders, I’m generally with JakeK and those who think that buybacks show a lack of management direction and that surplus cash arising from the sale of an asset (like the Permian) should then be distributed to shareholders for them to decide whether or not to re-invest. Although I now recognise the technical definition, In my view it’s a bit of a stretch to call buybacks a ‘distribution’ unless that distribution can be measured and reported. GLA
my guess, they will largely use share buy-back for 80-90%, but
may also give a special cash dividend for the balance. bwtfdik.
(personally speaking, i’m not too fussed about
buyback vs divi, either good from my perspective.)
Boyobach you’re right it could be buybacks, Tbh to me it’s a vague statement and it could mean one or other or both, I guess that’s why Managements like to use it.
it looks like though reading between the lines that the BOD slightly worded the Buybacks differently in July’s Half Yearly statements compared to Monday’s statement but I could be wrong.
Here is a small extract from the July’s statement they made about the start of current buybacks from the RNS above.
“Thu, 29th Jul 2021 07:03
Shell announces commencement of share buybacks
July 29, 2021
Royal Dutch Shell plc (the ‘company’) today announces the commencement of share buybacks as part of its move to the next phase of its capital allocation framework, which includes shareholder distributions in a range of 20-30% of CFFO.”
At the moment we’re all guessing because only the BOD really knows, but we’ll find out in Q3 or Q4 when Management decide to make a statement after the transaction closes.
I regard buy-back as the opposite to placing. One is concentrating share value when you have funds not required for business activity. The other dilutes share value for activity otherwise unfunded. Imo neither is inherently better than increasing, or reducing, divi.. Horses for courses & one size does not fit all.
Placing or cutting dividend are usually better than borrowing; as for lending out surplus funds forget it.
I always think buybacks are a copout. Pay out the money to shareholders who can then decide (or not) to re-invest.
Sorry - my reply did not include Casapinos response: I don't agree with that because, as has been established, there was no explicit mention of a 'special divi' in the RNS and the term 'distribution' can refer to buybacks.
An aside on buybacks and the effects on SP's
These two papers (OK they're longish and in some places complex , so read the frist couple of pages ......)
illustrate two things , first that in the worlds biggest market company buybacks drive a very significant portion of the entire trade, I've seen (but currently can't find the reference ) that at times buybacks are 75% of US trades,remeber the mega caps have way more money than the rest of us, and second that companies which buyback in significant quantities out perform the rest , so over time us , the shareholders benefit.
I strongly suspect that the CFO's of the UK's major companies know this!
Cheers guys - much as I thought.
Just to clarify, Getagrip, by 'shrinking' I was referring to the sale of the Permian interest effectively making the company's operations value smaller. The cash balance would obviously increase to compensate - so the next step (how they use that cash) will determine whether RDS is smaller after the entire process. By using the cash to buy shares that are then cancelled they will increase the share in the business held by each remaining investor but the company will be of lower value than it previously was because the cash will have left the building. In essence, I think the shareholders won't be that much better off - certainly not to the tune of $9billion distributed as cash - maybe a few tens of pence per share?
This is what RDSB said in the RNS
"The cash proceeds from this transaction will be used to fund $7 billion in additional shareholder distributions after closing, with the remainder used for further strengthening of the balance sheet. These distributions will be in addition to our shareholder distributions in the range of 20-30% of cash flow from operations. The effective date of the transaction is July 1, 2021 with closing expected in Q4 2021."
It both EXPLICITLY says "distributions" and references back to the commitment to add this to the already committed Divi regime based upon 20-30% of cash flow.
It cannot be any clearer , assuming the deal completes, there WILL be a special divi of (my est 60-70p, depending upon no. of shares in issue at that time,subject to the existing buy back programme and the £:$ exchange rate).
It's a good summary, but I don't want to disappoint you by agreeing with everything you have said. I don't think share buy-backs shrink a company. All they do is reduce the number of shares in issue, with the remainder generally being worth more in tandem with this. Also as a legalised share price support mechanism, with a bank using strategically placed purchases, the positives can as intended be disproportionately positive to the funds deployed.
It is really down to which company has the highest capitalisation value:: a company with one share in issue with an SP of £1m or a company with a million shares in issue with an SP of £1 each. If the company buys back it's one share worth £1m, is it then suddenly worth less than £1m?
There won't be a special dividend.
Shell will use the money to pay down some debt, invest in some green issues but mostly to initiate a buyback of shares, like other Co's are currently doing i.e. BP. Nowhere in the release does it confirm any dividend other than the usual.
Buybacks obviously cancel shares reducing those in circulation thus making the earnings per share increase thereby making the directors look like they are hitting their targets. This enables the said directors to achieve their eye watering bonuses.
I've been investing for decades & seen it happen so many times.
So just to re-iterate there will be no special dividend here or they would have said so.
As Happyinvestor pointed out to me, the word ‘distribution’ can, in this context, be applied to sharebuybacks as well as to direct cash distributions. There has also been one apparent quote from an executive, posted here, that indicates that buybacks are a distinct possibility.
If the proceeds from RDS’ disposal of the Permian Asset are largely used to buyback shares rather than re-invest in the business or distribute directly to shareholders, then what will have been the net benefit to shareholders?
By selling off the Permian interest and using $7 billion of the proceeds to buyback and cancel shares the company would be shrinking but without directly giving shareholders their share of the cash released. It would no doubt be argued that the main benefit will be the $2.5 billion used to strengthen the balance sheet plus, possibly, a notional gain (or loss) if the shares cancelled cost proportionally less (or more) than the actual book value of the reduction incurred.
Does this summary seem correct to you?