Companies have gotten stingier with dividends in recent decades, but they’ve grown more generous with share repurchases. There’s just one problem for investors. For the stock market as a whole, repurchases might be largely a mirage.
“Most buybacks are phony,” wrote Rob Arnott, former editor of Financial Analysts Journal and founder of investment firm Research Affiliates, in a recent email exchange. “If management redeems stock options and the company then buys back the same amount of shares, this is management compensation, not a buyback.”
Arnott constructed an 85-year history of U.S. stock market dilution by comparing the rate at which companies issue shares, including through public offerings and options that are converted to shares, with the rate of repurchases.
Tags: Stock, Stock Buybacks