RE: Magic £2213 Apr 2022 16:59
All good points Getagrip - and I can’t fault them, despite remaining sceptical about the direct benefit that small PI’s like me are experiencing. I always thought buybacks were limited by regulators in order to minimise market volatility and manipulation. I should have clarified that Chevron also do buybacks but not by cutting their dividend to fund them. The performance there has been stratospheric compared to Shel over the last two years. Perhaps this is because Shel (along with BP and, to a lesser extent Exxon) were overvalued in the period leading up to the OP collapse and this was finally exposed when the market crumbled? If that is the case then Shel probably has little hope of catching back up with CVX and I'm barking up the wrong tree. Maybe £26 would be the top under those circumstances, rather than the £30+ level that CVX' performance suggests.
There’s a good and balanced Investopedia article on buybacks here:
https://www.investopedia.com/articles/financial-advisors/121415/stock-buybacks-good-thing-or-not.asp
Which sums it all up as follows:
The Bottom Line
Share repurchase programs have always had their advantages and disadvantages for company management and shareholders alike. But as their frequency has increased in recent years, the actual value of stock buybacks has come into question. Some corporate finance analysts feel that companies use them as a disingenuous method to inflate certain financial ratios, such as EPS under the auspices of providing a benefit to shareholders. Stock buybacks also enable companies to put upward pressure on share prices by affecting a sudden decrease in their supply.
Investors shouldn't judge a stock based solely on the company's buyback program, though it is worth looking at when you're considering investing. A company that repurchases its own shares too aggressively might well be reckless in other areas, while a company that repurchases shares only under the most stringent of circumstances (unreasonably low share price, stock not very closely held) is more likely to have its shareholders’ best interests at heart truly.
You should remember also to focus on the stalwarts of steady growth, price as a reasonable multiple of earnings, and adaptability. That way, you'll have a better chance of participating in value creation versus value extraction.
Some experts contend that buybacks at current high market levels cause the company to overpay for the stock and are carried out to placate large shareholders. For clients who invest in individual stocks, a knowledgeable financial advisor can help analyze the longer-term prospects of a given stock and can look beyond such short-term corporate actions to realize the actual value of the firm.
Sign In
Follow the stocks
