stocks keep going up while only a minority benefits and not much is returned into actual growth http://michael-hudson.com/2017/08/stock-on-trumponomics/
Buyback volume is comparable to dividend volume [1]. Both return cash to investors. From a macro perspective, focussing on one over the other is misleading.
Buyback and dividend cash can be consumed or re-invested. Given corporate buybacks pale in comparison to broader funds flows, it looks like it's being reinvested.
Even if every investor selling into a buyback consumed the cash, those buybacks are largely being funded by debt. On the net, that translates to investors hopping up the capital structure. Not exiting the capital markets.
from a societal perspective, it's a tax "refund" for the wealthy to enable stock buybacks over dividends, since capital gains are taxed less, and can be tactically spread out by in time to minimize the effective rate. At the same time, a company's spending on stock buybacks are considered an expense (rather than a capital expenditure), therefore decreasing the tax bill on a company's balancesheet.
I think stock buybacks should cost the company the same as dividends - that is, they should be taxed at the same rate, and also not be considered an expense that they can offset taxes from.
I wouldn’t consider the text very accurate in hindsight.
If you can't benefit from the S&P going up 30% in a year, I'm not sure what anyone can do for you.
1. It signals to investors that the company is confident and low risk. (Research and development is considered high risk.)
2. It makes the company more purely itself, it doesn't have shares backed by cash that drag back its price growth. If people expect future growth this means that growth per share will be higher, so they would start buying now to get some of that future higher growth. (Of course in addition to magnifying growth it also magnifies decline.)
An interesting thing is that this article says
> Stock buybacks can have a mildly positive effect on the economy overall.
Which seems to contradict what that previous article said. This article also says that stock buybacks will cause other companies to do more research and development.
In a way, the company has an earnings yield of EPS/stock price (or inverse PE). If the company cannot invest the money in its operations that makes a larger return that the earnings yield then the stock is actually a better investment. The huge issue is that when markets crash is when technically a company should be buying back tons of its stock but rarely do companies ever do this and instead elect to hoard cash when buybacks are best & spend money on buybacks when it’s the worst ROI (when the market is hot & earnings yield is minimal).
So if a company just keeps offering to buy stock at a high enough price to match existing sell orders it'll push the price of a stock up.
Whether that's sustainable in the long run is a different story, but there's no ironclad mathematical relationship.