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The fashion of the dividend ‘invisible’

The stock or reserve of own shares is like a swiss army knife: it has multiple uses. There are companies that used to defend against takeover hostile, others that pull from it to give back to their managers, there are people who rely on it with the aim to encourage the quotation, and it is also intended to give back to the investors. This last example starts to become fashionable in Spain. The latest company that has joined this trend is Repsol. The oil has reduced its capital in € 68.7 million shares.

“it Is a salary formula very widespread in the british market, but not so much in Spain. Consists of go to market, acquire treasury shares and to amortize subsequently,” explains Javier Amo, a professor at the Instituto de Estudios Bursátiles (IEB). In the united States companies in the S&P 500 have already withdrawn from circulation securities to the value of 700,000 million dollars and the forecasts suggest that the course will close above a billion.

In Spain, investors are accustomed to the cash dividend, to be distributed on one or several occasions throughout the year. “The depreciation of treasury stock has the problem that it costs you view it as a form of retribution, but it is. When you have less stock, the profit achieved by the company is spread among fewer titles. Thus, they play more part of the cake. In addition, during the time that they buy stocks there is more buying pressure and the value of the securities tends to go up,” recalls Alexander Martin, manager of Horos Asset Management.

Repsol has communicated this week the reduction of its capital at € 68.7 million shares

in Addition to Repsol, the Spanish market there are other companies that in the past few years come using this formula of compensation alternative. They include the cases of IAG, Iberdrola, Ferrovial or ACS. “In the end it is a decision of the team manager how to allocate the cash flow. An alternative may be the dividend in cash, another in the repurchase of shares, and a third Jetbahis option is to use that capital to make investments,” says Alvaro Martínez, member of Cartesio. When the companies opt for the treasury, this decision also implies an implicit message to the market that the shares are being valued at the low. “What is important is that the policy, either the cash dividend or the stock repurchase, to be predictable and sustained over time. It is not ok for a company to decide a year a formula and the next another. The repurchase of shares must be in addition to a dividend policy already established. If you change that plan dividends to repurchase shares is not a good sign”, adds this expert.

One of the aspects that you must take into account the investor to assess the type of retribution that has a listed company is the tax effect. In Spain, the collection of dividends is taxed with a 19% up to 6,000 first euros; with 21% if the amount ranges between 6,000 and 50,000 euros, and above that applied to the 23%. “Fiscally it is better to buy because in a first moment has no impact. Is achieved to defer the tax until the time at which you sell the shares,” says the manager of Cartesio.

black Legend

however, not everything is positive environment to the amortization of treasury stock. The first stigma that burden this practice remuneration is the possible lack of a clear strategy. “You can move the idea to the marketplace that the management team do not find opportunities interesting investment, that is to say, who does not know what to do with the money and, instead of looking for opportunities of organic growth or inorganic, prefer to rebuy titles,” warns Javier Amo. The other black legend of the shares, especially on Wall Street, is that many of the remuneration plans of the senior management of companies are linked to their actions reach certain levels. Push the quote through this system never hurts.

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