Capital Distribution Decision – Share Buybacks

The Fed now allows the nation’s big banks to resume share buybacks in the first quarter of 2021 though dividends will continue to be capped. Banks have healthy key capital ratios and augmented loss absorption capacity. Meanwhile to preserve cash during the pandemic many S&P 500 companies suspended buybacks.

I examined 6045 Company announcements over the years and was positively pleased to see a direct relation between share repurchase size and excess returns at announcement. Both self-tender offers and open market repurchase programs have historically generated lasting excess returns. Also I found that multiple repurchasers benefit from large repurchase announcements. And share repurchase can enhance EPS growth, inter alia. When tax rates on dividends and capital gains are equivalent, share buybacks give investors the option to benefit from continued appreciation and defer taxes by selling shares at later date.

Contents : Distribution Decision, Dividends vs. Share Repurchases, Positive Effects of Distributions, Positive Reaction to Share Buybacks, Special Dividends for S&P 1500 Companies, Open Market vs. Tender Offers , Share Repurchase Can Enhance EPS Growth, Formulating a Repurchase Strategy, Tender Offer Program Overview

Author: Sameer_Jain

Partner. Sameer Jain is founder of FinTech, the world’s first portal that seamlessly integrates traditional, illiquid and alternative investments within portfolios. Prior to this he was Chief Economist & Managing Director at AR Capital. Before that he headed Investment Content & Strategy at UBS Alternative Investments. At UBS, he served as a non-voting member of the Wealth Management Research investment committee, and as a capital allocator was responsible for all illiquid investing including fund manager selection and due diligence across the platform. Prior to UBS he headed product development & investment research at Citigroup Alternative Investments that managed over $75 billion of alternative investments across hedge funds, managed futures, private equity, credit structures, infrastructure and real estate. Here he led a team that developed proprietary models for portfolio strategy and asset allocation with alternative investments, provided investment support and research to pension plans, sovereign wealth funds, endowments as well as internal clients including Citi Private Bank. Before this he was with Cambridge Alternative Investments and SunGard (System Access) where he travelled to over 80 countries for work across Europe, Asia, Middle-East and Africa. He has written over 30 academic and practitioner articles on alternative investments with thousands of downloads at SSRN, presented at over a hundred industry conferences and has coauthored a book, Active Equity Management. Mr. Jain has multiple degrees in engineering, management, public administration and policy and is a graduate of Massachusetts Institute of Technology and Harvard University. He is a recipient of the Alfred Sloan Fellowship and subsequently was a Fellow of Public Policy and Management at the Harvard Kennedy School of Government for a year. He holds Series 7 and 66 securities licenses.

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