We would love to hear your thoughts about our site and services, please take our survey here.
TheTrotsky, you are right. Sorry, I hadn't adjusted the number of shares to take account of the consolidation. Even so, with Aviva's history and the fact that they are now looking to incease business in a crowded sector I still have my doubts about the value going forward.
A lot of the discussion about the future share price seems to use the dividend yield as a valuation metric. No account seems to be taken of the profitability. Roughly 30% of the 2021 profits were from discontinued operations, meaning that without major increases in profitability next years proposed dividend would only be covered 1.1 times. A cut in the dividend would then likely be priced in. A number of Aviva's peers yield in the range 6.5% to 8.5% so an adjustment in the share price to reflect this is also possible. I'm still holding for now, but looking to sell on any rise before the consolidation.
LTI
You have illustrated the point well.
A buyback is an investment by the company in itself. It is not a return to shareholders.
P.s .I looked at HFEL after your earlier reccomendation - total return over 3 yrs 1.37% and over 5 yrs 13.4%.
If this is your idea of a good investment I would keep your reccomendations to yourself in future.
I would be very sceptical of anything from Simply Wall St. I read some of their analysis of various companies a few years ago and it was obvious that they hadn't got a clue. The final straw for me was when they reccomended Carillion as a buy the week after they went bust.
I wonder if too much is being made of this short by Lombard. It could be part of a hedged strategy whereby a decent movement up or down nets them a profit, with a limited loss if the price doesn't move enough. For example, how do we know that they don't also hold a bunch of call options.
Just a thought.
From the latest half year accounts (12th Aug 2021) adjusted operating profit from discontinued operations in full year 2020 amounted to £1.35bn - 43% of the total. In the first half 2021 it was £407m - 36% of the total. Let's hope there is enough growth left in the remaining businesses.
I think it likely that the total amount paid as dividends will be cut as the businesses disposed of contributed £1.35bn to adjusted operating profit last year. Which brings me to my original question, how do shareholders benefit from buybacks?
Perhaps I am missing something here because I do not understand how share buybacks return cash to long term shareholders, let alone in a tax effecient way, unless you become an ex-shareholder. Could somebody please explain.
I have never known a share buyback to benefit the shareholders. I understand the theory that is often used to justify them but it seems that the only people to benefit are the directors and their advisors.
Consider this: When a company pays a dividend the cash goes straight into the shareholders pocket, less any tax if due. When a company buys back it's own shares the only way a shareholder gets any cash is by selling their shares. As they are then no longer a shareholder they miss out on any theoretical increase in earnings per share. The buyback depletes the net asset value, just as a dividend payment does, negating any increase in the share price and depletes the capital of the business limiting the opportunities for further growth. Then there is the cost of advisors fees and brokers commissions and what about stamp duty?
It has long been my opinion that if a compny has cash it doesn't know what do with it should be returned to shareholders via dividends, buybacks should always be voted down and Directors that do not know how to grow the business or successfully invest spare resources should be replaced with those that do.
Beware any analysis from Simply Wall Street. I have blocked them from my news feeds as their analysis and their facts are often wrong. These people were recommending Carillion a week AFTER they went into administration.
Thanks for your comments. It was a consolidation not a split. My memory is obviously fading because the rights issue was actually at 1p not 7p as I thought. Unfortunately this hasn't affected my average purchase price. I first bought these in 2006 at 236p because I could see the merits of fuel cell technology. After initial rises I dumped half when the price fell to 170p. When the price fell to single digits it wasn't worth selling the rest. The consolidation meant my holding was virtually worthless so I kept them. At the current trajectory I may even get my money back. Good luck to all of you who bought more recently, this has obviously been a remarkable turnaround story.