Comments on: Home Depot’s New Stock Buyback Amounts to 30% of their Shares http://www.peridotcapitalist.com/2007/06/home-depots-new-stock-buyback-amounts.html Stock market and investing blog published by Chad Brand, Founder/President of Peridot Capital Sat, 11 Feb 2012 23:26:23 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: Chad Brand http://www.peridotcapitalist.com/2007/06/home-depots-new-stock-buyback-amounts.html/comment-page-1#comment-581 Chad Brand Thu, 21 Jun 2007 17:19:00 +0000 http://www.peridotcapitalist.com/?p=459#comment-581 Hi Bruno,<br/><br/>It goes back to the discussion I wrote about recently regarding the dividend vs buyback debate.<br/><br/>In my view (although I don't own HD) there are several reasons why a buyback is better than a special dividend.<br/><br/>1) A buyback is accretive to earnings, whereas dividends are not. The result is that the buyback will boost the value of a share of stock. As a shareholder, that is of utmost importance, assuming I am not living off of the dividends and therefore are unconcerned with capital appreciation.<br/><br/>2) A special dividend really just represents a partial sale of stock. If a company pays out a $5 special dividend, the share price drops $5 on the payment date. You get $5 cash but lose $5 in equity value. You aren't any better off, rather you simply monetized a portion of your equity investment. You can do that on your own if you want to, so no need for company management to force you into it.<br/><br/>3) Dividends are taxable. I would not want to pay taxes on a dividend payment today if I could avoid doing so simply by continuing to hold the stock while they buyback shares. Hi Bruno,

It goes back to the discussion I wrote about recently regarding the dividend vs buyback debate.

In my view (although I don’t own HD) there are several reasons why a buyback is better than a special dividend.

1) A buyback is accretive to earnings, whereas dividends are not. The result is that the buyback will boost the value of a share of stock. As a shareholder, that is of utmost importance, assuming I am not living off of the dividends and therefore are unconcerned with capital appreciation.

2) A special dividend really just represents a partial sale of stock. If a company pays out a $5 special dividend, the share price drops $5 on the payment date. You get $5 cash but lose $5 in equity value. You aren’t any better off, rather you simply monetized a portion of your equity investment. You can do that on your own if you want to, so no need for company management to force you into it.

3) Dividends are taxable. I would not want to pay taxes on a dividend payment today if I could avoid doing so simply by continuing to hold the stock while they buyback shares.

]]> By: Bruno http://www.peridotcapitalist.com/2007/06/home-depots-new-stock-buyback-amounts.html/comment-page-1#comment-580 Bruno Thu, 21 Jun 2007 17:05:00 +0000 http://www.peridotcapitalist.com/?p=459#comment-580 Chad,<br/>In your view why would the announced stock buyback be better for shareholders than a one-time special dividend? Chad,
In your view why would the announced stock buyback be better for shareholders than a one-time special dividend?

]]> By: Chad Brand http://www.peridotcapitalist.com/2007/06/home-depots-new-stock-buyback-amounts.html/comment-page-1#comment-578 Chad Brand Wed, 20 Jun 2007 23:04:00 +0000 http://www.peridotcapitalist.com/?p=459#comment-578 I think it is telling people that the retail business isn't going to turn around anytime soon, so this is the best use of their resources for shareholders right now. It is a huge undertaking for a large cap stock. They could have just used the $10B without issuing more debt. Still, investors are likely happy. I'm not sure what else they would want to go along with their 2+ percent dividend. Perhaps 3% but that will likely be upped as well at some point in the not-too-distant future. I think it is telling people that the retail business isn’t going to turn around anytime soon, so this is the best use of their resources for shareholders right now. It is a huge undertaking for a large cap stock. They could have just used the $10B without issuing more debt. Still, investors are likely happy. I’m not sure what else they would want to go along with their 2+ percent dividend. Perhaps 3% but that will likely be upped as well at some point in the not-too-distant future.

]]> By: Adam http://www.peridotcapitalist.com/2007/06/home-depots-new-stock-buyback-amounts.html/comment-page-1#comment-577 Adam Wed, 20 Jun 2007 14:48:00 +0000 http://www.peridotcapitalist.com/?p=459#comment-577 Chad,<br/>I'm all for buybacks, as I think its one of the best ways companies can return value to shareholders... but this one smells a little fishy to me. Maybe its the sheer size of it, its definitely the biggest buyback I have seen since becoming a trader. This one smells of a management team that is bent on damage control... coming right after the announced spinoff of HD supply, the departure of Nardelli... on top of that, we still dont know exactly how much the housing correction will impact HD's earnings growth going forward. This looks to me like a desperate effort to get people to buy in, ahead of their next quarter results, which could easily be terrible... kind of like when struggling companies raise their dividend to insane levels to tempt people to buy in or hold on when the fundies arent so good. Chad,
I’m all for buybacks, as I think its one of the best ways companies can return value to shareholders… but this one smells a little fishy to me. Maybe its the sheer size of it, its definitely the biggest buyback I have seen since becoming a trader. This one smells of a management team that is bent on damage control… coming right after the announced spinoff of HD supply, the departure of Nardelli… on top of that, we still dont know exactly how much the housing correction will impact HD’s earnings growth going forward. This looks to me like a desperate effort to get people to buy in, ahead of their next quarter results, which could easily be terrible… kind of like when struggling companies raise their dividend to insane levels to tempt people to buy in or hold on when the fundies arent so good.

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