stock question

[Ring1]

Intel announced today that it was going to increase its stock buyback program and increase dividends from .04 to .08 per share. This had the effect of lowering the stock price.

Can someone explain why reducing the amount of stock in the marketplace and paying a higher dividend would cause the price to fall? Or is it coincidence?

Thanks in advance.

 

[HookEm]

From a strict market capitalization stand point, the stock price should have gone up, but so many other things play into a stock's price movement that you can't attribute the move to any one thing.

 

[jimmyjazz]

Increased dividends could be interpreted as less cash on hand for the company --> less value. I'm not sure why anyone would look at it like that as opposed to looking at it as being a more valuable stock to own, but the market is funny that way.

 

[ReyDelSol]

Also -

Most of the tech companies did not pay dividends in the past because they were growing so fast. It was better to have that money around for growth of the company and therby the stock value than to receive dividends.

If you start paying dividends and then increasing dividends, the market may take it as a signal for diminishing growth rates in the company.

...or not.

 

[gsoda3]

give up. there's absolutely no way to know.

 

[Ring1]

I'd hate to think the market is unreasonable. True, you can't always predict what will happen, but it generally runs logically.

My guess is that the slowdown in the PC market and the reports that sales are declining had more to do with the stock price falling than the dividends. The buyback was probably enacted to counteract this slippage in sales, but it hasn't prevented it altogether.

 

[XYZ]

when a high-tech company uses its cash to pay a dividend, it signals to the investment community that the company doesn't see a need to use the cash to expand the business....which is not necessarily bad but tends to forecast that slowth may be slowing in the future

 

[horn4life]

Sort of agree with osme of the above statements-

Intel's actions say'the stock is un dervalued" so we are going to buy more of it and take it off the market.

We are boosting the dividend as we reduce the overall number of publicly held shares. Ex- you have $100 in dividends for 100 shares, the company buys back 20 shares and next year will divide the $100 in dividends among the remaining 80 shares. So larger dividend per share but not because of GROWTH.

GROWTH is the lynchpin and underlying value of MANY tech stocks, without continued growth the multiplier will likely be reduced over time. So waht would be good for a brick company might not be 'good' for a high multiplier tech company.

 

[stupidgringo]

Buy low sell high.

 

[GatePratt]

I suspect the answer is closer to the reduced growth prospects answer. Buying back stocks may not necessarily signal feeling the stock is undervalued. It has the same effect as paying a dividend without the longterm commitment.