There are “corporate finance” reasons for arguing against buybacks in some companies and they include concerns about damaging growth potential (where buybacks come at the expensive of good investments), about timing (when companies buy back shares when prices are high, rather than low) , or managerial self-interest (if buybacks are being used to push up boutiques prices ahead of option exercises). The typically large automobile company in 2015 is a highly levered behemoth, which struggles to earn enough to cover its cost of capital in a market with anemic revenue growth. As the NASDAQ approaches historic highs, Apple’s market cap exceeds that of the Bovespa (the Brazilian equity index) and young social media companies like Snapchat have nosebleed valuations, there is talk of a tech bubble again. That will be good news for those workers, but doing so will only push down the measly return on capital that GM is currently earning, make future access to capital (debt or equity) even more difficult, and set the company on the pathway to financial devastation. The firm’s income tax rate is 40%. Zybeck presently has 750,000 shares of common stock which have a market value of $10 per share, no preferred stock, and no debt.
While I have argued against the pricing premiums that the market is paying for Tesla, it is undeniable that it’s entry into the market has speeded up the investments that other auto makers are making in electric cars. If you believe, as I do, that as a publicly traded automobile company, GM’s mission is to take capital from investors and generate higher returns for them that they could have made elsewhere, in investments of equivalent risk, with that money, you can justify the buyback and perhaps even argue that it should be more. There was no single precipitating event but a collection of small news stories and solid earnings reports that seemed to settle the fears that investors had about the company’s future direction. Small stock dividend. A stock dividend is considered to be small if the new shares being issued are less than 20-25% of the total number of shares outstanding prior to the stock dividend. Advanced Micro Devices Inc. (AMD) – Shares of Advanced Micro Devices Inc. are trading back above $8.00.
Sirius XM Radio (SIRI) – Shares of Sirius XM Radio is back trading in the mid $1.30’s. If your response is that you cannot let that happen to an American icon like GM, there was a time when Xerox was so dominant in its business that it’s corporate name became synonymous with its product (copies) and Eastman Kodak was the ‘camera’ company, but pining for those days will not bring them back. I chatted to my wife and we came to a conclusion we will need to tap on her savings for the housing expenses ahead. Hold the cash or pay down debt: Auto companies are natural cash hoarders, arguing that as cyclical companies, they need the cash to survive the next recession or downturn. While there are some strict value investors who believe that dividends are qualitatively better than buybacks, because they are less volatile, the aggregate amount returned by US companies in buybacks is too large to be ignored.