WALL STREET JOURNAL: …The large payouts are boosting investors’ confidence in a stock-market rally that has pushed the Dow Jones Industrial Average to a record. Buybacks have an even more direct effect than dividends on companies’ share prices because they can boost earnings-per-share, a closely watched measure of profitability, by reducing shares outstanding, although some companies use the stock they buy to deliver shares to executives who exercise stock options. On Thursday, the Dow notched its third consecutive record close, ending at 14329.49.
“We are starting to get out of hunker-down mode, so what you have now is a bunch of cash-hoarders who have decided to take that cash out of their balance sheets,” said David Ikenberry, dean of the University of Colorado’s business school. “Is that a good thing? It probably is. They’re liberating capital and putting it back out into the capital markets, and letting that multiplier effect kick in.”
One other possible effect: higher tax revenues for the government… (more)
EDITOR: “Multiplier effect”? That happens if they invest the money or pay higher wages. But sending money to people who then put it in other stocks and bonds does not necessarily generate much economic activity.
