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I tried to figure out the question out as an investor who believes in holding for the long term, and that the SP will eventually reflect the fundamentals. Mr Market may see things different along the way, swinging from over optimistic to over pessimistic, or visa versa, but that is another story.
Looking at the question from the view of the fundamentals, supposing you own 1 share in a fictitious company valued at £1000 and having 100 shares in issue. The SP would be £10 so you would own 1% (£10/£1000x100) of the company.
The company has the two options to give back money to the SHs:- either pay dividends that could be used optionally to buy more shares, or buy-back and cancel the shares allowing SHs to cash-in any gains by selling some shares should they so wish. Suppose in the first instance there are no dealing costs or tax liabilities.
The dividend case. Suppose that the company issues a dividend totalling £100. You receive £1 as your share of the total dividend, but the company value would have to fall from £1000 to £900 ex dividend as it gives away £100 of its value. So the SP would now be worth £9 (£900/100shares). Then further suppose that you use your £1 dividend to buy shares in the open market at the SP of £9. You would get 1/9 or 0.11 of a share increasing your ownership in the company from 1% to 1.11%. The value of the company would then rebuild as earnings are accumulated and the SP should rise again fro m the ex dividend.£9 back to £10 once £100 is earned by the company. Your holding will now be worth £1.11.
The buy back case - the company uses the £100 it wants to give back to SHs to buy-back and cancel shares. In this case the company value would again fall from £1000 to £900 and 10 shares would be cancelled leaving 90 in issue. The SP would remain unchanged at £10 (£900/90shares), and your ownership of the company would increase from 1 in 100 (1%) to 1 in 90 (1.11%), exactly as it would if dividends were to be reinvested. As earnings accumulate again by £ 100 the SP should rise from £10 to £11.1 making your shareholding worth £1.11.
The value of your shares holding will be the same in each case. Which is better? That, it seems to me, depends on your tax situation. If you keep the dividend, or use it to buy more shares, you may need to pay dividend tax (at a higher rate when compared with capital gains tax) and dealing and stamp duty costs if purchasing more shares. No dividend tax is payable when shares are sold on share buy-backs, but transaction and capital gains tax (but at a lower rate than dividend tax) would be payable on any sale . This sale can be deferred as long as you wish, so compounding ownership at a higher rate if held long term. For those needing to pay tax on the investment, the share buy-back option would always seem to me to be preferable long term. If no tax is payable, it seems to be a case of six to one, half a dozen of th
Same price it was in 2017, what a turd of a share, even by dog index of the world ftse standards, there is just zero growth in the whole index and the dividend stuff is drivel, not much point buying yield to lose half your capital, more factoring in inflation.
Porsche/who cares what the SP was in 2017,its what the SP will be in 2027, is what matters. I would prefer buy -backs ,although i doubt if the big income funds would agree with me.
Same price as it was in 2017? Lovely. I’ll have some more of that, thank you. Crazy not to buy heavily at these prices.
I’ve held DGE , or previously. Grand Met., since 1990 - returns have been more than satisfactory. So I’m unfazed by the drop in the SP. Many of the fundamentals are still excellent although consumers have been cutting back on their tipples and I would prefer lower gearing. In the end strong brands endure., so I am content to keep DGE in my keep in my “no need to monitor closely” part of my portfolio.
Better to buy at 2700p (2017 price) than at the near 4000p it was a couple of years ago.
Euro 2024 starts in a few weeks & plenty of booze will be drunk this summer :P
Share buybacks in theory should make future dividends &/or debt repayments easier to make (as long as the buyback shares are cancelled). They shouldn't be a bad thing at all !
How can you decide between this and Reckitt when looking to start a position?
Both are down and quality companies. Just wondering which to go for?
Abject/i looked at RKT before i bought into DGE a few weeks ago. For me DGE looked the better company ,better management, stronger brands and with Buffett on the major shareholders list. This has Buffett written all over it,i expect him to increase his position
RKT also have the uncertainty of the potential litigation ongoing which will keep it marked down until it’s clearer of what the eventual cost will be (which may be nothing or a lot).
I’m adding here as well, along with WTB.
GLA
I think I’m gonna keep my powder dry and see if either falls further . If this does I’ll top up here
At this sp it is a definite steady buy back. The more they can "pick up" below£2600 the better.
As far as I am concerned share buybacks demonstrate to me a lack of imagination by the management. Where the managers cannot grow the company organically, growth can be achieved through acquisition. Sometimes growth is too rapid and considered folly. Marconi is a good example, though I digress. When both growth routes are exhausted, surplus cash can buy shares for scrip or cancellation or distributed as dividends.
Given a choice between more shares by way of scrip, my holding representing a greater percentage of the capital in the company or cash to decide for myself, I have always chosen cash
Surprised buffet got involved with this after ulvr and Tesco which were a loss making waste of time for him, Diageo another dog, it was only the last ceo keeping this together….buffet should know that U.K. shares are known as “ the bug zapper trade “.
Porsche/Obviously Buffett has not your superior knowledge ,when it comes to stock picking.
As you can't even spell his name tou complete clown..
* Buffett
Alas_S. If you have to pay tax and would like to increase your ownership of the company, which is better depends on your tax situation I should think. Some of us have to pay 39.35% dividend tax on cash or scrip dividends and only 20% CGT on buy-backs which can also be deferred. If you believe in the long term future of the company, and want to increase your ownership over time, buy-backs would seem to me to be the preferred option for some taxpayers. It certainly is for me, and I vote in favour of it in AGM resolutions
With the exception of planning for IHT when I eventually peg out, tax has never been a factor in the decision for an investment. In terms of long term, until last year I had just 1 equity in my portfolio held since 1979. It was Shell (in its various incarnations, (Shell Transport and Trading/Royal Dutch Shell/Shel) and gifted my remaining 50 shares to my younger son to seed his SIPP.
Scrip shares were beneficial in building my stake in Shell, but the real gains were from capital uplift. Minority shareholders with a holding under 1% issued share capital are not practically affected by share buybacks hence my preference for cash.