The price at which a company buys back shares matters.
If a company buys back shares for less than they are worth (their “intrinsic value”) then that purchase is accretive to the value of each remaining share. Conversely, if a company buys back shares for more than they are worth then that dilutes the value of the remaining shares. It’s possible that your oil company has been overpaying for its shares for years, in which case that buyback would have harmed the value of the shares you hold.
For an example of this, see Berkshire Hathaway. Warren Buffett has been buying back shares for a couple of years at a discount to their intrinsic value, creating value for shareholders. However in the most recent quarter, after the stock has had a significant rally, he repurchased zero shares. If the company has reached its fair value then there’s no further benefit to repurchasing shares. In that case it’s better either to pay a dividend (taxes aside) or just to hold cash until the stock drops to a level where it’s cheap to repurchase shares again.
If a company buys back shares for less than they are worth (their “intrinsic value”) then that purchase is accretive to the value of each remaining share. Conversely, if a company buys back shares for more than they are worth then that dilutes the value of the remaining shares. It’s possible that your oil company has been overpaying for its shares for years, in which case that buyback would have harmed the value of the shares you hold.
For an example of this, see Berkshire Hathaway. Warren Buffett has been buying back shares for a couple of years at a discount to their intrinsic value, creating value for shareholders. However in the most recent quarter, after the stock has had a significant rally, he repurchased zero shares. If the company has reached its fair value then there’s no further benefit to repurchasing shares. In that case it’s better either to pay a dividend (taxes aside) or just to hold cash until the stock drops to a level where it’s cheap to repurchase shares again.
Statistics: Posted by lhl12 — Wed Nov 06, 2024 4:31 am