When public companies generate profits there is an expectation that after the company has invested in itself, the company will reward shareholders. The shareholders is rewarded by the profits which allows the company to buy back stock and pay dividends, often times both. For some investors, they would prefer stock buybacks which are not taxable, but does help increase the share price. Other investors prefer the cash, but if you own thousands of shares taxes plays a role in your decision making.

In an article from Reuters, for many years the big tech companies have generated billions in cash and most of the money has gone into large bank accounts and the reinvestment in the business. Last year, Facebook announced a dividend. This year, Alphabet has announced a dividend along with a $70 billion stock buyback. Buybacks work as follows: every share trades a price multiple calculated as EPS or earnings divided by number of shares outstanding. If the number of shares decreases, the earnings will increase on a per share basis which pushes the share price higher.

For Alphabet, revenue was $80.54 billion for the quarter, compared to estimates of $78.59 billion. The value of the shares increased with the quarterly results.

Linking to dividend paying stocks, there are a number of reasons to own stocks however once it can consistently make a profit to pay for dividends it allows for the holding to become years rather than the owning for the growth of the share price. It is a good thing for a company to pay a dividend because most companies cannot. The fact the company can means less risk as a shareholder for the cycles of the stock market.

There are more questions than answers, till the next time – to raising questions.