Boeing Stock Buybacks: A Double-Edged Sword for Investors

Boeing's stock buyback program has been a topic of discussion among investors. The company has been aggressively buying back its own shares, which has led to a significant increase in its stock price.

Between 2015 and 2020, Boeing spent over $50 billion on share buybacks. This amount is staggering, and it's worth noting that this program was implemented during a period of significant growth for the company.

However, some critics argue that this program has come at a cost to Boeing's ability to invest in its business. The company's research and development budget has been reduced in recent years, which could have long-term consequences for its competitiveness.

Boeing's stock price has indeed increased significantly since the start of its buyback program, with a 50% increase in the past five years.

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Boeing's stock buyback program has been a significant factor in influencing its stock price. The company's stock buybacks have been a major topic of discussion in the financial world.

Boeing is an example of how stock buyback programs can impact a company's financial ratios. By repurchasing its own stock, Boeing has been able to increase its earnings per share and improve its return on equity.

A stock buyback program can be a way for a company to return value to its shareholders. Boeing has used its cash reserves to buy back its own stock, which has helped to boost its stock price.

The financial media has scrutinized Boeing's stock buyback program, highlighting its potential impact on the company's financial ratios and accounting standards.

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Boeing's stock buybacks have a significant impact on shareholders, with the company repurchasing over $25 billion in shares between 2015 and 2020.

The increased value of Boeing's stock has boosted the wealth of its shareholders, with some investors seeing a significant return on their investment.

Shareholders have benefited from the increased stock price, with some seeing a return of over 50% in just a few years.

However, critics argue that the money spent on buybacks could have been used to invest in the company's business, potentially leading to more sustainable long-term growth.

Employees, on the other hand, have seen a decline in their stock options and retirement savings, as the increased stock price has made it more expensive for them to buy shares.

The company's focus on buybacks has also led to a decrease in research and development spending, potentially impacting innovation and job creation.

Worth a look: Advantages of Share Repurchase

Boeing's top executives were paid ninety million dollars in the three years leading up to 2001, a period in which the company's return on assets was only 6.3%.

An unsophisticated investor could have earned a five percent annual return on six-month bank certificates of deposit during the same time, with greater safety of principal and liquidity.

Directors have fiduciary responsibility to shareholders, but corporate governance codes do not specify what this means.

Companies like Boeing use stock buybacks to boost executive options, which can be a clever way to give value to executives without directly paying them, but it can also be a complex and opaque process.

Philip Condit, the Boeing Chairman and CEO, considered buying back a major portion of equity to be "a mode of value creation".

He believed this would enhance shareholder value, provide immediate current returns, and position the company for greater valuation over the long term.

Condit claimed the buyback program was a way to return "excess cash" to shareholders in "the most efficient fashion", but a simple cash dividend would have been faster, cheaper, and more equitable.

In a 1998 interview, an unnamed Boeing source said the company hoped to use excess cash to "buoy its lagging stock price".

Condit reiterated this point in a 2020 interview with Charles Schwab, saying that share repurchase is a way to return excess cash to shareholders in the most efficient fashion.

This approach was consistent with the logic for buybacks advanced by many other CEOs during the Great Bubble.

Boeing's top executives were paid a staggering ninety million dollars over three years, from 1999 to 2001. The company's return on assets during this period was a meager 6.3%.

An unsophisticated investor could have earned a five percent annual return on six-month bank certificates of deposit, which offered greater safety and liquidity. This return was more than the executives earned.

Managers of closed-end bond funds gave their shareholders higher returns on assets, but received much more modest remuneration. This disparity raises questions about the justification of executive pay.

If the buyback money had been used to pay dividends, investors would have received a cash yield of over six percent. This would have been a more equitable distribution of wealth.

The executive holds this option at no cost for months, or years, until the market rises. He then exercises this free call — buying the stock from the corporation, often with money borrowed from the company — and re-sells the stock on the market for a profit.

There's no guarantee that stock prices will rise, making this strategy a high-risk gamble. The executive overcomes this difficulty by using company funds to buy stocks from other investors on the exchange, reducing the supply, and forcing prices upwards.

The SEC conveniently condones this practice, granting an exemption from rules against stock manipulation and insider trading. This exemption allows executives to manipulate the market with impunity.

The cost of using company funds to manipulate stock prices is charged directly to the capital accounts – in accordance with the time-honored, treasury-stock loophole in accounting rules. This means the costs are hidden from view, making it harder to detect the manipulation.

The trusting, long-term shareholder, whose proportionate claim on assets has been diverted to others, is soothed by Wall Street analysts and, ignorant of this subtle ploy, is blissfully unaware that his pocket has been picked.

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Companies can use treasury stock to manipulate stock prices and benefit executives.

The SEC condones this practice, granting an exemption from rules against stock manipulation and insider trading.

Money used in the purchase and sale of a company's own shares is never reflected in profit and loss accounts.

This allows companies to hide expenses and give value to executive options through stock buybacks.

Stock buybacks can be used to fortify executive options, but the link between the sale and purchase of treasury stock is blurred and subject to many rules and conditions.

Companies have learned to finess money tied up during delays by giving executives options to buy stock at a price expected to be lower than the market at the time of repurchase.

Boeing used treasury stock to give value to executive options, and their stock buyback program influenced markets.

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Corporate Hijacking is a phenomenon where executives with significant equity holdings in their companies use their influence to make decisions that benefit their own wealth, rather than the company's long-term success. This can lead to poor decision-making and a focus on short-term gains.

In the case of CEO pay, research has shown that executives with high equity holdings are more likely to engage in corporate hijacking. For example, a study found that CEOs with high equity holdings are more likely to take on high-risk strategies that increase their own wealth, even if it means harming the company's long-term prospects.

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Corporate hijacking can manifest in various ways, including the use of stock options to inflate executive pay. Stock options give executives the right to buy company stock at a predetermined price, which can become highly valuable if the company's stock price rises.

A notable example of corporate hijacking is the case of Enron, where executives used complex financial instruments to inflate the company's stock price and line their own pockets. This led to a massive collapse of the company and widespread financial losses for investors.

By understanding the risks of corporate hijacking, companies can take steps to prevent it. This includes implementing robust governance structures, setting clear performance targets, and ensuring that executive compensation is tied to long-term performance metrics.

Boeing stock buybacks were not a subject Wall Street wanted to highlight.

Clearly, the company's decision to absorb a major chunk of equity through buybacks was significant, causing the price of Boeing stock to double in just nine months.

The Boeing-Boeing interview is a notable example of this, where the multi-billion dollar pressure of buybacks went largely unaddressed.

In a quote from the Journal of Aerospace and Defense Industry News, Mr. Condit said that Boeing committed to finishing the 1998 share repurchase program.

This commitment was a change in tone from the initial authorization by the board, highlighting the importance of the buyback program.

The goal of the buyback program, as stated by Mr. Condit, was to enhance shareholder value.

However, the lack of transparency surrounding the buyback program raises questions about who the promise was made to and what the quid pro quo was.