Wednesday, September 21, 2011

As an owner of the business you are better off with a share buyback than dividends giving that your stock is undervalued. This will be a super good option when the stock is undervalued.
A lot of research shows that shareholders are better off with share buyback. As simple as this, if the company P/E ratio is 12 and it dose share buyback, the shares outstanding will be lowered after the buyback and hence will increase the P/E. As a result, you, and investor, make more money through stock appreciation than you would do through the dividends payout, because you are dealing with P/E multiple of 12. In addition to the tax advantage and the perception of the market toward your undervalued stock.
Share buyback is showing under the name "Treasury Stock" at the Owner's Equity in the Balance Sheet. And they are negative in the Balance Sheet. And in many cases companies list them as they describe how much dividend they paid right after the balance sheet or somewhere in the 10-k report.  

Hussain Jubail

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