Word: stocking
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Dates: during 2000-2000
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Other companies announcing old-fashioned buybacks in the face of slumping shares include Sears and Nokia. And still others are engaging in buybacks as an alternative to paying dividends, sound from a tax view. Dividends are taxed as income; buybacks tend to lift a stock, which generates capital gains normally taxed at a lower rate...
...perfect match--say 100 million options exercised and 100 million shares repurchased--the all-important net effect on earnings per share is nil. But investors generally don't appreciate that. They see a huge stock buyback and assume it's positive because buybacks have traditionally reduced the number of shares outstanding, and that increased earnings per share and made each share more valuable...
...plenty of companies still buy back shares for the right reasons. Deflated by the Firestone flap, Ford has increased and expedited a huge buyback unveiled last spring. The company plainly believes its woes are overblown, and many analysts agree. The stock is down 17% in two months and looks like a screaming bargain to some. I'm not so sure, given the bad publicity the Ford Explorer is getting...
...buybacks are increasingly concocted to offset the potential dilution of mega-stock-option grants, which exploded in number in the '90s. The strategy is especially prevalent among tech companies, including Dell, Adobe and Autodesk. But others, including Citigroup and Chiron, do it too. The idea is to buy back enough stock so that when executives and employees exercise options, the company can deliver the stock without printing more...
Moreover, "about half of the high techs end up repurchasing stock near their highs," says Bob Gabele, who tracks stock-option activity for Thomson Financial Securities. That's hardly a wise use of cash. But companies fall into the trap because they've been doling out so many options for so long. They must buy back shares whatever the price--or issue more shares...