Share buybacks: good, bad or ugly?

PARIS: Share buybacks are all the rage among the world’s companies, to the delight of many shareholders but not of critics who say they are lazy, short- sighted and mostly designed to enrich corporate fat cats.

Be it Adidas and Total in Europe or Cisco and Boeing in the United States, big names are rushing to announce such buybacks which involve using surplus cash to pick up the company’s own stock in the open market.

Usually the shares are then cancelled, meaning the company’s value is now spread over fewer shares.

Share buybacks are not new, but 2018 portends to be a particularly big year for such operations.

According to TrimTabs, an independent institutional research firm in the United States, US firms have already announced US$ 226 billion in share buybacks since the beginning of the year.

A JP Morgan analyst expects US$ 800 billion from companies listed on the S& P 500 alone this year, up from US$ 530 million last year, thanks in no small part to tax reforms of US President Donald Trump.

Companies, sitting on big profits from last year when the economy grew briskly, need to decide whether to plough the cash back into the business, or give it back to shareholders, either via dividends or share buybacks.

US firms tend to opt for buybacks, a choice that’s becoming more frequent in Europe as well.

“Share buybacks are an option that provides more flexibility than dividends,” said William De Vijlder, chief economist at BNP Paribas.

“But for shareholders turns out to be the same, expect for tax treatment,” he told AFP. — AFP