Stock buybacks have become a contentious issue between investors, politicians, and businesses leading the charge, but what is the real story?
Stock buybacks face bipartisan opposition
The steady increase in buybacks has continued despite bipartisan political backlash against the system. Both Democratic and Republican legislative leaders have actually spoken out against issue, stating that U.S. companies aren't investing enough of their benefits from the 2017 tax cuts into creating new jobs that might aid the economy.
Although Big Businesses unveiled over $1 trillion of stock buybacks in 2018, the tax breaks have yet to influence a lasting influence on service costs in factories, software application, and new devices.
Share repurchases are facing severe criticism from both sides of the aisle in Congress, where authorities allege that the practice is fundamentally damaging to the greater economy.
However, critics might have it wrong.
Corporate giants support buybacks
Two of America's most prosperous magnates are making a strong stance in support of stock buybacks. Billionaire investor Warren Buffett, CEO of Berkshire Hathaway Inc., and Jamie Dimon, CEO of JPMorgan Chase & Co., the biggest bank in the United States, are praising the practice, stipulating it's valuable to both investors and the economy at large.
Unsurprisingly, both Dimon and Buffett's companies have invested significantly in buybacks over the last few years.
Buffett invested over $421 million on share repurchases in the fourth quarter of 2019, including $233.8 million invested in buybacks of Berkshire Hathaway's A shares between December 13 to December 24 alone.
And over the past five years, JPMorgan Chase has reclaimed a shocking 20% of its outstanding stock, investing $55 billion in the process. JPMorgan's market price today is about $345 billion.
What are buybacks anyhow?
Buybacks are the redeeming of shares of stock by the corporation that dispensed them. A buyback happens when the providing company pays investors the market worth per share and re-absorbs that portion of its ownership that was formerly scattered throughout public and private investors.
With stock buybacks, aka share repurchases, the firm can buy the stock on public exchanges, such as the NYSE or Nasdaq, or directly from its financiers. More recently, share buybacks have actually overtaken dividends as a preferred method of returning profit to investors. While smaller sized companies might not be as prone to repurchase their stock, blue-chip corporations, particularly in recent years, have been driving the trend.
By Michael Kern for Safehaven.com
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