For a lot of us, stock buyback isn’t a new thing as a lot of big corporations do it on a regular. Most times, the major reason why companies do this is to make their investors happy about the appreciation price of their investment. In so many cases, buybacks of shares favor the investors who invest in the company’s shares. Also, Buybacks can be very bad. In this post, I will be discussing about stock buybacks and how they can be good and bad.
Since companies do this to improve the value of their stocks, it is often good for investors thereby allowing them to invest more and invite more investors to invest in the company. When companies buy back their stocks, the price of the stock increase and the shares seize to be in the market anymore and this is good for investors but at the same time it can be bad as it could be a way to manipulate the market so as to allow management members make more money compared to the amount they would have made. Some companies pay in shares, as way of getting relief on tax. At this point, the company also buys shares back thereby giving the management more money because they are being paid in shares.
Shares buyback is often advised for companies which are undervalued so it will help to improve the value of the shares but also, large companies with excess money also do buybacks. Companies in the Airline and banking industry are always buying back shares to impress their investors. Stock Buyback also can serve as dividend as companies that do stock buybacks do not give dividends because they want to increase the value of their stocks and reduce the number of stocks in circulation. Companies do this so they can reduce the number of people who own the company and it makes the company look healthy.