The Importance of Stock Buybacks and Dividends for Business Growth

The Importance of Stock Buybacks and Dividends for Business Growth

According to a report by www.aktienwelt360.de,

Share buybacks and dividends are two forms of capital returns that are of interest to investors. One of the two options can also work without the other, but both options can be particularly exciting when used together or in flexible alternation. Companies often rely on both in order to provide investors with corresponding added value.

Stock buybacks are considered good for a strong dividend because they reduce the number of dividend-eligible securities. For example, if a company wants to use one billion euros for the dividend and 100 million shares are outstanding, the dividend per share is 10 euros. If management also buys back 5% of the outstanding shares that year, the total outstanding shares in the coming year will be 95 million securities. In purely mathematical terms, the dividend per share would therefore be around 10.52 euros. Share buybacks can therefore help drive dividend growth. Buybacks can also serve as a buffer for difficult years and ensure dividend stability.

On the other hand, the dividend is not necessarily good for share buybacks. If a company has operational difficulties, its own share price is often inexpensive and buying and withdrawing shares is particularly interesting. However, if management prioritizes dividends over share buybacks, the company is not taking advantage of this potential. A strong and stable dividend could be a brake on targeted buybacks.

In uncertain times like these, it is therefore particularly important to individually assess companies' capital repatriations. Analyzing share buybacks and dividends can help make informed investment decisions.

Vincent owns shares in Meta Platforms and Munich Re. Aktienwelt36 recommends stocks from Meta Platforms and Munich Re.