RE: Possible Dividend increase24 Jul 2024 18:30
Mr T ( long time sir ) and LTI
Buybacks can be looked at in many ways and there usually is a modicum of truth in how they 'could ' be explained. Complex issues such as buybacks are difficult to explain with simplicity and I know I struggle.
My attempt to understand buybacks is as follows....
When BP repurchases and cancel its own stock, the total number of outstanding shares decreases not , in my opinion, the size ( market capital ) of the company. Just as if BP issued 100 Billion new shares through a rights issue, necessary for M&A or debt reduction ( just examples ) the shares would massively increase but the market cap could ' hypothetically ' remain the same.
Buybacks are at best benefiicial for investors when a company is undervalued and on any matrix BP currently is regardless of the market.
With buybacks, after BP's shares are repurchased and cancelled all remaining shares gain a larger claim on the profits. This should make every remaining share
more valuable and entitled to a higher share of profits and, in an ideal world not controlled by the markets, send the share price up. However, the market is complex and reacts to sentiment, in vogue sectors, world events etc etc so just because a share does not react by rising that does not make buybacks a negative.
By repurchaing shares and cancellation The company can hypothetically fund an increase the dividend paid to remaining shareholders from the saved dividend funds without pressure on profits.
Each case, company is different but with BP undervalued on so many metrics. I am happy to add and hold and hopefully benefit from a 10% prudent dividend increase every year for the foreseeable, of course not guaranteed, but I feel confident .
Other options free cash
Debt reduction. Regardless of credit ratings industry. This is not an issue. Debt reduction is meaningless in the position BP are in going forward.
Large increase in dividend/ Special dividend. That depends of what type of investor you are. I'm a long term investor in the company. I want stability, prudence and careful management of funds so in my opinion it would be a meaningless gesture. Invest, build, growth for me.
Always happy to consider other opinions along the way to the same desired destination.
Mark
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