FYI: Share buybacks are turning into one of the more contentious issues in all of finance. I don’t think it matters nearly as much as some would have you believe but there are people in both finance and political realms who think buybacks are everything that is wrong with capitalism right now.
Bernie Sanders is the latest politician to voice his hatred for stock buybacks. I just think the law of unintended consequences is at play here and an outright ban of something like this would have outcomes some of these people aren’t thinking through.
Here’s my response in a recent Fortune piece.
Regards,
Ted
https://awealthofcommonsense.com/2019/10/dear-bernie-sanders-banning-buybacks-wont-help/
Comments
1. Buybacks decrease the amount of equity on a company's balance sheet and thus increase its leverage on a relative basis. The debt to equity level goes up, which can be dangerous if a company hits tough times as there may be debt covenants which require a certain debt to equity ratio: https://forbes.com/sites/greatspeculations/2018/05/20/buybacks-the-new-magic-beans/#43c29ae62dc2
2. Dividends are immediately taxed, which from the perspective of the government, is a good thing for raising revenue. A share buyback lets investors hold onto the gains forever if they choose without being taxed. That is good for investors, but bad from a society perspective, considering the massive tax break corporations just got to hopefully--miraculously really as far as phony trickle down eco is concerned--create more and better paying jobs. So eliminating the buyback would encourage companies to pay more dividends and allow the government to raise revenue to reinvest in the economy, support social programs, pay for our military, etc.