June 26, By Trey Henninger Leave a Comment. In my last post I discussed dividends which are one method which company management can use to return value to shareholders.

The other main method is what is known as stock buybacks. This results in a few immediate effects.

Reduction in the number of shares outstanding, reduction in the cash held by the company, change in the value of the company, and most of the time a change in the per share value of the company. This will also reduce the cash held by the company and reduce the value of the company. However, they have increased their ownership in the company. This increase will mean that any future earnings from the company are due to you at a larger percentage than they were before.

Assuming both dividends and buybacks are taxed in the same way, there should be no preference between the two. The difference is that dividends are paid to all shareholders without any requirement of selling their shares, while share buybacks use cash to pay fewer shareholders that have to sell their shares to get the cash.

The reason is that the market price and the book value were the same. If the market price was different than the book value, then the per share value of the company would change as well.

If the market price of the company is above the book value, then the per share value of the company will go down. However, if the market price of the company is below book value, then the per share value of the company will increase.

This is a very important point to remember. Be aware of this next time you see a company buyback announced.

Stock buybacks are just one way of returning value to shareholders. The other most common method is dividend payments. When a company repurchases their own shares, the number of shares outstanding decreases.

The percentage ownership for continuing shareholders will increase, but the overall value of the company will go down by the amount of cash spent to repurchase the shares. Unlike with dividends, it is important to consider the market price vs the book value when choosing to perform a stock buyback.

What do you think of stock buybacks? Would you want companies that you own to perform them? Leave your thoughts in the comments below.

Indigovision Group Share Price | IND Stock News | Interactive Investor

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Share buybacks: What they are and why they may not work - Business Insider

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