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Given the recent stock market losses in the first half of 2022, companies are under a lot of financial pressure. There are two articles to read for this week’s discussion. Start with the article explaining how stock buybacks work and then read the short WSJ article on buybacks.
Find an example or two (other than those discussed in the WSJ article) about firms making or announcing upcoming stock buybacks. Discuss the suggested (or assumed) reasons for the buybacks. What sort of impact is this expected to make on the firm and its stock price and do you see any changes in the firm’s dividend per share payouts moving forward? You may or may not find detail in the main article you find on the buyback. You might find more from press releases on company websites or in additional searches on the firm’s activities/outlook in 2022.
A major question that should be answered if possible is how the firm is financing these buybacks. Are they taking on more debt (that will change the firm’s debt/equity ratio) or is the firm using excess cash?
If there are also any articles available for 2022 on the firm’s plans for dividends, that would be very interesting to add to your discussions.
Consequences of cash vs. debt are a couple of things to consider, but not NECESSARY to include in your discussion: In the case of taking on more debt, now the firm will need to increase its interest payments. If the firm is using “excess” cash, might there be repercussions later in the year if the economy actually goes into a recession?
If you work for a firm that is buying back stock or if you have personal experience with this, those are great examples. You will still need to find at least one credible outside source to support your comments and viewpoints.