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There are many investors talking about the positives and negatives to the increase in the stock buyback programs. Basically, most organizations are participating in a stock buyback program; thus, the companies are betting on the stock market can generate a better return than their internal programs. This is usually a losing proposition since the market return is less than the organizations internal returns. Also, the programs are used for insiders to gain higher than average returns on their stock options and shares. This lack of transparency is causing for some to call for a change in the financing for board of directors.
These are the three main reasons for stock buyback programs.
- Financial engineering: By repurchasing shares, companies can maintain or boost their earnings per share.
- A better way to return money to shareholders: Buyback is just another way of distributing corporate profit to shareholders, and it’s a better way of distribution to avoid dividend double taxation issue.
- Offsetting employees who cash in: This is to maintain or improve the stock per share price.
Gary Kapanowski – Lean Six Sigma Master Black Belt – Excelsior
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