I agree with most of what he writes, other than his dividends vs share buybacks commentary. I'm glad he published the descending comments though. A few quick thoughts:
1. Dividends are taxed, share buybacks are not. This is why in cases where a mature Company is sitting on a large pile of cash with little to no long term debt, share buybacks provide more value by avoiding the tax man.
2. If the management team truly believes the company is undervalued, buying shares back makes a lot of sense, especially for mature companies. However, if the buy back leads to incentive bonuses for the management team I'm 100% against it. Also, it's a lot more telling when a Company does this during a recession than a boom.
3. As alluded to in the comments, corporate earnings are relatively worthless without a cash flow statement for the same time period.
A stock buyback only increases the fundamental value of the company if it results in an increase in dividends per share. A company that buys back stock instead of paying dividends, and also has no intention of ever paying dividends, would only be valuable in the way a baseball card is valuable.
Right, which is why I said "mature company" (who is hopefully, by then, issueing dividends :-D). At the same time, if a company issues dividends it can't afford to pay (cough Citi cough) this can be devastating to a Company's prospects.
At it's core, the whole reason stocks are worth anything to begin with is the anticipation of future dividends (DCF).
1. Dividends are taxed, share buybacks are not. This is why in cases where a mature Company is sitting on a large pile of cash with little to no long term debt, share buybacks provide more value by avoiding the tax man.
2. If the management team truly believes the company is undervalued, buying shares back makes a lot of sense, especially for mature companies. However, if the buy back leads to incentive bonuses for the management team I'm 100% against it. Also, it's a lot more telling when a Company does this during a recession than a boom.
3. As alluded to in the comments, corporate earnings are relatively worthless without a cash flow statement for the same time period.