Three ways to create value:
- Organic growth
- Share buybacks
- Buyback strategy should focus on making a meaningful reduction in share count
- Look for managers that are consistently reducing the share count
- As a general rule of thumb, buybacks should be executed when the stock price is below book. Dividends can be issued when the stock price is above book
- What’s the reason for the buyback?
- Does leadership have a history of buybacks?
- Companies that quietly buy backs shares vs. those that publicize usually have the best motives
Share buyback vs. special dividend
- A significant share buyback is always better
- It leads to a higher valuation, because it sends an important signal to the market – management team is very buyback focused.
- Capital allocator behaves like an owner vs. manager
- Ensure that the buyback program is a long-term commitment to reduce stock count vs. covering options issued to managers.
Capital allocators to study:
- Marlon Wilkus @ American Capital