X
Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.
This is an entirely free service. No payments are to be made.Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.
This is an entirely free service. No payments are to be made.
| Login Failure | ||||||||
|
||||||||
| Sign Up | Forgot Password? | ||||||||
The number of companies going for share buybacks has been on the rise lately. The trend has picked pace especially after Union Budget 2016-17, where the government imposed an additional Dividend Distribution Tax (DDT). Many companies went on to declare dividends after the announcement. And those who missed the bus are now taking the share buyback route.
In a buyback, the company purchases its own shares from the stock market. Subsequently, it cancels them or keeps them as treasury shares. The whole buyback process results in the reduction of company's outstanding shares.
A buyback could mean the company has adequate cash to buy its own shares and is willing to reward its shareholders. It could also mean an improvement in financial ratios such as price to earnings, return on assets, and return on equity.
Apart from the above, buybacks make a lot of sense for companies now as they've turned tax efficient over dividends in India.
Many companies have already taken the plunge, while some are in the process. And going by the momentum, more could follow in the coming days...
In this report, we reveal four proven strategies to picking multibagger stocks.
Well over a million copies of this report have already been claimed over the years.
Go ahead, grab your copy today. It's Free.
So what should long-term investors do?
There's no doubt that tendering a part of your shares in a buyback could be a tempting proposition, especially if the buyback price is higher than the market price.
However, it's important to understand that buybacks reduce the outstanding number of shares. Thus, the shareholders who don't tender their shares will end up with a bigger piece of the pie.
Doing nothing during a buyback may not be satisfying to many investors. Receiving cash may seem to be a better option.
But remember, if you really are a long-term investor, buybacks will increase the value of your existing shares. The reduced number of outstanding shares will boost per share earnings as well as RoE. And in the long run, these two measures matter more than anything else.
In all, we believe investors should consider buybacks on a case-by-case basis.
Buybacks can be seen as a healthy development. However, that should be only one of the data points investors should look at. Ultimately, it boils down to management integrity, the company's moat as well as the health of the company's balance sheet.
For information on how to pick stocks that have the potential to deliver big returns, download our special report now!
Read the latest Market Commentary
|
| |
Since 1996, Equitymaster has been the source for honest and credible opinions on investing in India. With solid research and in-depth analysis Equitymaster is dedicated towards making its readers- smarter, more confident and richer every day. Here's why hundreds of thousands of readers spread across more than 70 countries Trust Equitymaster.
Copyright © Equitymaster Agora Research Private Limited.
Whitelist | Refer | Terms | Privacy | Contact | Advertise | About | Sitemap
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
All rights reserved. Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.
LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.
SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster requests your view! Post a comment on "What Do Buybacks Mean for shareholders?". Click here!
Comments are moderated by Equitymaster, in accordance with the Terms of Use, and may not appear
on this article until they have been reviewed and deemed appropriate for posting.
In the meantime, you may want to share this article with your friends!