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The Problem With A Buyback-Dependent Equity Market
Dividend yields for US stocks are nearing levels last seen a quarter century ago around the dot-com
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It is not T.I.N.A. that decribes our current focus. We really should watch our first-order driver: B.M.O.C. Jim Reid has called it but he hasn’t been didactic enough – we are the market, we are dumb. We need a guide like Dante had 800 years ago. For the whole damn market to continue upward, we first need those famous One-percenters, the BMOC to keep us alive as a successful C-suite, Trumpian economy. Without Buyback, More On a Consistant basis, TINA will expire and we peasants, are all dead. .
What portion of the total value of US retirement accounts (total value is about $44T) is invested in publicly traded US stocks (market cap for US publicly traded equities is about $52T)?
Also, what are the annual contributions to retirement accounts that get invested in US equities, net of distributions that don’t get reinvested in US equities in after-tax investment accounts?
I dislike the current justification of buybacks as “returning money to shareholders”. Dividends are net flows to shareholders. Buybacks are money to shareholders and taking shares away from shareholders, for zero net flows to shareholders.
As H says, buybacks flourish in “good times”, lifting stock prices at the expense of weakening the company’s liquidity and capital structure, borrowing from the future to gild the present. How many billions did BA spend on buybacks, only to desperately need those billions when the good times ended? INTC, GE, etc similar?
Of course, few of us are shareholders in the original sense. Our shareholdings are digital artifacts, bought and sold with a mouse click, seldom lasting more than a few years or even a few months. So, pragmatically, I shouldn’t care.
Someone recently brought me their certificated shares in XYZ company, asking what to do with them. Several hundred shares, enough to make a big difference in this person’s life at current price, XYZ having been quite a terrific stock over the last few years. I said, after you bought these shares XYZ did a 12:1 reverse split and these shares that you’ve held for so long are, well, you can pay your rent plus buy some groceries for another year. I’m sorry.
I am a great believer in dividends. It is money in your hand tat cannot be taken away when the market plummets, and it does plummet from time to time. Of course good dividend stocks don’t grow like tech stocks when markets are climbing, so dividend investing gets far less attention.
H-Man, so when buybacks stop a big piece of stock support vanishes (not good for price) – akin to playing musical chairs with chairs that have four legs that now have two. Good luck not crashing to the floor.