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Who are attracted by buy-backs, dividends?

In Financial competency on 28/09/2015 at 1:09 pm

Here’s something interesting from Fidelty on the share buyback versus dividend debate. (Via FT):

The two are often treated as if they were the same thing, when there are quite different financial transactions.

Share buybacks are an acquisition of an asset, with a price to earnings multiple. They are not a risk-free investment, indeed they are very risky. A dividend is a long-term commitment to shareholders to distribute excess returns. It is not an acquisition.

Therefore, a company will attract very different shareholders depending upon which route it takes. Buybacks will attract activist and event-driven shareholders, while dividends will attract a more stable shareholder base.

Dominic Rossi is global chief investment officer of equities at Fidelity

 

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