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by gizmondo
817 days ago
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> On the other hand, a buyback should lower the market cap of a stock You got it backwards. If a stock is priced fairly, a buyback is value-neutral. Reduction of the cash on hand is offset by the increase of future cash flow per share. It's dividends that reduce the market cap. |
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Perhaps you are thinking of share price instead: there it is true that dividends reduce share price, while buybacks are share-price neutral at least theoretically, though it is commonly believed by many people that they do affect price.
(Hence, under that same theoretical model, market cap must decrease if share price remains the same because market cap is total number of outstanding shares * share price. So if the former decreases while the latter stays the same, market cap must have decreased.)