We been hearing a lot of talk from both left and right about the evils of corporations buying back their stock. Like talk of banning the practice. It's not that corporations need the stock, they can print new stock certificates for nearly any amount of money for pennies, cost of paper and ink. It's not like buying raw materials or building new factories. It is believed that buying up the company's stock will raise its price, supply and demand, make the stock scarcer and its price will rise.
Saturday's WSJ editorial came out strongly in favor of allowing stock buybacks. They didn't give any numbers. The traditional way for a company to raise the price of its stock is to declare a big fat dividend, Which is paid to all stock holders and can be expensive for a company like GE with a zillion shares outstanding. The idea behind stock buybacks is you only have to pay off the investors that actually sell their stock, rather than all shareholders. Might be cheaper that way. The WSJ didn't give any numbers supporting that idea.
On the other hand, the main reason companies want to boost their stock price is to reward executives with stock options. I had a stock option once, with Bernie Gordon's Analogic, and it paid off like crazy. On the other hand, if the company wants to pay off a hardworking successful CEO, they can jolly well vote him a cash bonus. They don't have to manipulate the stock market to reward successful executives.
And, you would think that companies could find constructive things to do with extra cash in the till rather than doing stock buybacks. Like new product development, new factories and distribution centers, improved manufacturing techniques to lower product cost, more publicity and advertising, buying up competitors, stuff that would increase their income.
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