Oil Companies Buy High(

[grumpy]

The WSJ had an article today headlined:

"Oil Giants Splurge for Investors Many Major Companies Make Share Buybacks as High Prices Leave Firms With Piles of Cash"

The article says the ExxonMobil, for example, will generate $22.5B in cash this year. XOM will likely increase its share buyback program and increase its dividend.

I'm fine with a dividend increase but I don't understand why it would be a good thing for investors in XOM for the company to buy back shares when its share price ($49) is currently higher than it has been for almost all of the last decade. I have owned XOM shares since 1995 and continued to DCA into them until 2003 when the share price reached $37. I would not be a buyer at the current price. Why does the XOM management team think this is a good use of the shareholders money?

Any insights?

Grumpy

 

[unclemick]

They don't - shareholders come last. Buybacks are current groupthink. Managing earnings is in nowadays. Share buybacks are one of the tools used.

Ben Graham used to say that the market valued a dollar of dividends more than a dollar of earnings.

Post bubble - the market is still saying company management can produce value better than giving dollars to shareholders. Even with the dividend tax cut.

I too own a big chunk - acquired when they merged with Mobil. I plan to keep it - no matter how stupid they get - hopefully they are too big to fail.

 

[unclemick]

BTY - any posters old enough to remember the buying spree some major oils went on - the last time oil prices stayed high for a while?

Now that turned out well, didn't it? - Heh, heh, heh!