The Truth About Stock Buybacks

Discover new investing ideas, join our newsletter: https://www.overlookedalpha.com/youtube This was meant to be a longer form video but I ended up cutting it back down to only 4 minutes. Guess I like those quick bites. ... In the current environment, the US treasury provides a better yield than 90% of large cap dividend stocks, so in many cases, it doesn’t make sense to buy a stock just for its dividend. But there’s another very important point to be aware of. Over long periods, dividend stocks have underperformed. Over the past 10 years, for example, the Vanguard Dividend Appreciation ETF, has returned 186%, while the S&P 500 has returned 219% The Nasdaq 100 has done even better, with a gain over 400%. In fact, studies have shown that the way to get the largest returns is actually to reinvest your dividends, which amusingly, is what a buyback does. It’s just a fact of life that many of the best businesses choose to initiate stock buybacks instead of paying out dividends. Warren Buffett’s Berkshire Hathaway is a prime example. The company has never paid a dividend but it has initiated plenty of buybacks. In fact, Buffett has been very clear on his stance towards dividends. He thinks dividends are useful only when a company has no better use for that cash. And as for his stance on buybacks: He said that those people against buybacks are either an “economic illiterate or a silver-tongued demagogue”. So it’s clear there is a lot of confusion around stock buybacks and a lot of political rhetoric. #investing #stocks #buybacks #overlookedalpha