If Your Stock is So Cheap - Why Aren't You Buying Back Shares Hand Over Fist?
Dividend Investing, Dividend Growth Investing, Contrarian
Contributor Since 2008
When a CEO constantly bemoans the fact that his/her stock price is wildly undervalued by Wall Street - why don't they just jack up the dividend, and/or buy back stock hand over fist? Intel's Paul Otellini is constantly scratching his head about the lack of air under INTC's price action - and he's not alone by any means amongst corporate CEOs, but I'm going to single him out for this example. Intel had been sitting on a nice pile of cash, while paying a very respectable 3.3% dividend. Yet INTC has traded in the same range for much of the last decade - granted it was wildly overvalued when we started the decade, but the lack of stock appreciation has nonetheless been frustrating for Intel execs and employees alike. INTC: Going nowhere, fast. (Source: Yahoo Finance) So if you want to get investors' attention - why not boost that dividend a healthy amount? Or buy back your wildly undervalued stock hand over fist? Time will tell if Intel's recent "M&A binge" will deliver an acceptable ROI to shareholders. The odds are against it, as Intel's M&A track record is not an envious one - which is similar to the fate of most corporate mergers...they are usually net losers. Personally I don't understand why companies would complain about a low share price while sitting on a large hoard of cash. Isn't that a golden opportunity to pick up an undervalued investment that will benefit both your company and its shareholders? I can only think of 2 reasons: As the old saying goes, "A Man's Got to Know His Limitations". Perhaps a CEO's got to know his company's limitations as well. But let me give Otellini his appropriate "props" for his recent remarks that Washington doesn't have a clue how to create jobs!
Disclosure: Long INTC