THE FINANCE GHOST: Bear markets are for buybacks

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Shareholder returns vary drastically based on management’s discipline in capital allocation. In this bear market, seek out cash-generative companies that can take advantage of these conditions, writes financeghost.

In finance theory, you learn about dividends and the “bird in hand” concept, which suggests that investors prefer dividends to larger capital gains because they are banking a return at an earlier stage and with more certainty.

But here’s the thing: if the company has great investment opportunities available, you technically shouldn’t want dividends. The company should retain all earnings and invest them at a rate that exceeds the cost of equity . In doing so, the company is seen as a “compounder” that generates strong returns over many years...

 

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