Keith you are 100% correct. I would be happy to forgo divs and do more buy backs.
The Maths is simple
For demonstration purposes only.
Year 1
Market Cap $5B
SOI 1B
Therefore stock is $5.00
assume Profit $5B
Say we buy back 50%. Cost is $2.5B. and 2.5B in free cash ( $2.50 per share)
Year 2 and beyond
SOI 500M
assume Profit $5B
Profit per share is now $10.00 per share.
Ceteris Paribus the $10.00 per share is in perpetuity.
Then as a margin of safety does it really mater if the Coal price is only 200 per tonne. You are still making do much money.
Capital Management 101
If a company cant find an investment that is better than its own Return on capital then Buy back more of your company.
Check my math's as I have had 3 X single malts, but you should get drift.
Cheers
Crash
Target $9.36, page-1608
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