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