Wednesday, April 13, 2011

DIVIDEND INCREASE OR STOCK REPURCHASE PROGRAMS?

Corporations have traditionally sought to return value to investors either through increased dividend payouts or through stock repurchase programs.  A dividend increase obviously meets the stated purpose of "returning value to investors" since the investor receives an increased cash payout.  However, as a long time investor, I have to say I've never really seen any noticeable benefit from stock repurchase programs.

Yeah, I know that a repurchase program reduces the number of outstanding shares, making the remaining shares (at least in theory) more valuable, since profits are split over a smaller number of shares.  This supposedly returns value to shareholders, who should then see an increase in the dollar value of their holdings.  I've never actually noticed any difference (increase in value) when I've had investments in companies who vote to repurchase shares.  In fact, recent research shows that repurchase programs tend to be a wash, since many corporate executives also vote to issue shares as part of executive compensation programs.  Turns out that the majority of shares being repurchased, and supposedly retired, are in reality being re-issued in the form of executive compensation. (Almost sounds like something someone should be going to prison for?)  Which also means that most shareholders would see absolutely zero benefit from a share repurchase program.

This being the case, I say "Show Me The Money!"  I'm making it a policy as a shareholder to vote my shares against ALL stock repurchase programs.  I'd rather invest my dollars with companies who have a history of increasing dividends.  You just can't beat cash in hand. 

For those who would argue the tax advantages of growth stocks, I say hogwash!  Didn't the "Great Recession" teach you anything?  How foolish did all the "growth" investors feel when 10 years of "growth" disappeared from their stock accounts practically overnight.  No thank you!  I'll stick with dividend investing.

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