Next weeks predictions, page-200

Buffet put forward a good way of thinking about buybacks and dividends in their last annual shareholder’s meeting. Keep in mind, I know Berkshire Hathaway are a completely different company to BCN.

They’ve always been against giving out a dividend as they see better ways to use the money. One of their regular uses is buybacks and he uses the below analogy to explain it;

Imagine you buy a company with 3 other mates, it’s doing very well and is very cashflow rich. 3 of them are in the wealth creation business and the other wants some money out. You could give dividends out which 3 of you don’t want, or you could buy the shares of the person that wants out at a fair price and all 4 are happy. And you do it at prices that are advantageous to those still in.

So those in BCN that aren’t happy with the gains can get out at their sell price while BCN can buy back shares at prices a lot of people agree are underpriced. They must agree they’re undervalued because they’re holders and haven’t sold yet. When a company continues to buy when they believe their share price is undervalued, that company will only compound quicker in the short and long term.

Just another way to look at share repurchases vs dividends.