Well done. This encapsulates 3 types of companies well, in a simple manner, explained so the reader can really understand: buybackers, dividend payers, and growers.
Notably, sometimes growers are buybackers (eg, META, BABA), and sometimes divvy payers are also growers (but those are rare).
Thank you, Andrew! I'm glad you found the article informative and insightful.
You're absolutely right. Companies aren't confined to one strategy—they can, and often do, mix approaches based on their circumstances and growth stages. Meta and Alibaba are great examples of this, as is the rare case of a company that pays dividends while also growing.
Thank you for your thoughtful comment. It highlights the complexity and dynamism inherent in corporate financial strategies.
Keep it up - I'll keep reading and throwing in my 2 cents! I identify as a value investor, and so a lot of folks assume that means I'm anti-technology, which is... well, if you've read any of my work, you are probably LOLing at that premise right now.
Overall I really liked the piece. One issue I had was with the idea that with share buybacks you own a larger piece of the pie and the pie stays the same. I believe this is a common misconception on wall street. While yes you do own more of a company if there are less shares outstanding, there is also less company to own. The company does not simply snap its fingers and buyback shares, it needs to spend cash to buy shares (cash that was previously owned by the shareholders). The reason shares increase after buybacks include: Wall Street realize that insiders believe the shares are undervalued and the insiders must know something the investors don’t (because they’re on the inside), and two the investors see less cash available to be burned on useless endeavors.
You're correct that buybacks involve a company using its own cash (an asset) to repurchase shares, which could be seen as decreasing the overall value of the company. However, it's crucial to remember that our discussion revolves around how a company chooses to deploy its cash—whether that's through dividends, buybacks, or reinvesting in the business. Each choice impacts the company and its shareholders differently, but they all represent a use of the company's cash. Thanks for emphasizing that aspect of the conversation.
Hi hf! In case you missed it, we touch on the tax implication for dividends and the tax advantage of buybacks in the article. There are other aspects to consider based on personal situations (such as country of residence).
Hi there! You should be able to zoom in once you click on the image. The best way to read our articles on mobile to to use the Substack reader app. You can download it here: https://substack.com/app
Well done. This encapsulates 3 types of companies well, in a simple manner, explained so the reader can really understand: buybackers, dividend payers, and growers.
Notably, sometimes growers are buybackers (eg, META, BABA), and sometimes divvy payers are also growers (but those are rare).
Thank you, Andrew! I'm glad you found the article informative and insightful.
You're absolutely right. Companies aren't confined to one strategy—they can, and often do, mix approaches based on their circumstances and growth stages. Meta and Alibaba are great examples of this, as is the rare case of a company that pays dividends while also growing.
Thank you for your thoughtful comment. It highlights the complexity and dynamism inherent in corporate financial strategies.
Keep it up - I'll keep reading and throwing in my 2 cents! I identify as a value investor, and so a lot of folks assume that means I'm anti-technology, which is... well, if you've read any of my work, you are probably LOLing at that premise right now.
Thanks!
Overall I really liked the piece. One issue I had was with the idea that with share buybacks you own a larger piece of the pie and the pie stays the same. I believe this is a common misconception on wall street. While yes you do own more of a company if there are less shares outstanding, there is also less company to own. The company does not simply snap its fingers and buyback shares, it needs to spend cash to buy shares (cash that was previously owned by the shareholders). The reason shares increase after buybacks include: Wall Street realize that insiders believe the shares are undervalued and the insiders must know something the investors don’t (because they’re on the inside), and two the investors see less cash available to be burned on useless endeavors.
Thanks for your thoughtful comment.
You're correct that buybacks involve a company using its own cash (an asset) to repurchase shares, which could be seen as decreasing the overall value of the company. However, it's crucial to remember that our discussion revolves around how a company chooses to deploy its cash—whether that's through dividends, buybacks, or reinvesting in the business. Each choice impacts the company and its shareholders differently, but they all represent a use of the company's cash. Thanks for emphasizing that aspect of the conversation.
How does $704 million in dividends on $1.3 billion investment become a 54% annual return, after 40 years?
It would be useful to extend this to include pros and cons from an after tax perspective for shareholders.
Hi hf! In case you missed it, we touch on the tax implication for dividends and the tax advantage of buybacks in the article. There are other aspects to consider based on personal situations (such as country of residence).
Can't zoom on the Apple graph. Still too small to read on a iphone
Hi there! You should be able to zoom in once you click on the image. The best way to read our articles on mobile to to use the Substack reader app. You can download it here: https://substack.com/app
Thank you, Travis! Much appreciated.