What are some alternative ways to return cash to shareholders besides dividends?

Share Buybacks: Companies repurchase their own shares, reducing supply and potentially increasing share price, as seen with Apple’s ongoing buyback programs. Special Dividends: One-time payments to shareholders, like those issued by Microsoft during exceptional earnings periods. Increasing the number of shares while decreasing the price per share can enhance liquidity and attract more investors, as demonstrated by Tesla's stock split in 2022. Companies may issue preferred shares that offer fixed dividends, providing an alternative to common stock dividends. By using excess cash to pay down debt, companies improve their balance sheets, indirectly benefiting shareholders through increased company stability and potential future growth.

No Brasil, além dos dividendos, as empresas têm outras formas de retornar capital aos acionistas. A recompra de a??es, por exemplo, é uma estratégia onde a empresa compra suas próprias a??es no mercado, valorizando as que ficam em circula??o. Outra alternativa muito usada no país é o pagamento de juros sobre capital próprio (JCP), que permite às empresas retornarem capital de forma eficiente. Também há a possibilidade de distribuir bonifica??es em a??es, onde os investidores recebem novas a??es como forma de participa??o nos resultados. Essas estratégias n?o só aumentam o valor para os acionistas, mas também permitem à empresa otimizar seu uso de capital, alinhando melhor seus objetivos de longo prazo às expectativas dos investidores.

One approach to distribute funds to shareholders, aside from dividends, involves implementing share buyback programs. This strategy entails a company repurchasing its own outstanding shares from the market, effectively reducing the number of shares available and potentially boosting the value of each remaining share. Additionally, companies may opt for special one-time dividends or engage in mergers and acquisitions that result in shareholder payouts. Exploring these alternatives can provide flexibility in managing cash reserves while still delivering value to investors.

Share buybacks involve a company using its excess cash to purchase its own outstanding shares from the market. Share buybacks can be way to protect against hostile takeover. Buyback effect value in 2 ways: (1) buyback offer right from announcement till implementation indicates about the company’s prospects & plans, (2) buyback financed through debt can change company’s capital structure and debt-equity ratio. There are various ways to implement (1) Open market stock repurchase, (2) Fixed price tender offer, (3) Auction based tender offers (4) Direct negotiation.

A share buyback (or stock repurchase) involves a company buying its own shares from the market. This reduces the number of outstanding shares, potentially increasing the value of the remaining shares. Benefits: Enhances earnings per share (EPS) and provides a way to return capital to shareholders without committing to a regular dividend. It also signals confidence in the company’s future prospects.

Leveraging corporate credit opens up a realm of strategic possibilities for companies. One insightful strategy involves the concept of corporate bond repurchases. Companies can utilize corporate credit to repurchase their own outstanding bonds from the market at favorable terms. This approach not only allows companies to manage their debt obligations more efficiently but also provides an avenue for returning cash to shareholders indirectly. By reducing your outstanding debt, companies can enhance their financial flexibility, potentially leading to increased shareholder value through improved credit ratings and reduced interest expenses.

Special dividends are one-time distributions of cash to shareholders. They are typically issued when a company has a windfall of cash, such as from the sale of an asset or a particularly profitable period.

I recommend considering special dividends as another option. Unlike regular dividends, special dividends are one-time payments made to shareholders, usually when a company has excess cash or has experienced a significant event, such as the sale of an asset. In my experience, this can be an attractive way to reward shareholders without committing to ongoing dividend payments.

Estos son pagos únicos que una empresa hace a sus accionistas además de los dividendos regulares. Se emiten generalmente en situaciones especiales, como cuando se vende un activo importante o tiene una ganancia inesperada. Un dividendo especial es una forma de compartir esta ganancia extra con los accionistas de una manera puntual. Supongamos que además de su negocio de normal una empresa tenía una propiedad que ya no necesitaba y decide venderla por $20 millones. Como resultado de esta venta, logran una gran cantidad de efectivo adicional que no tenían previsto. La junta directiva emite un dividendo especial de $2 por acción a sus accionistas. Si un accionista posee 1,000 acciones, recibiría $2,000 como dividendo especial.

Stock dividends are another alternative I find valuable. Instead of cash, companies distribute additional shares to shareholders based on their current holdings. This approach can preserve cash while still rewarding shareholders. I advise using stock dividends when the company aims to retain cash for growth opportunities while still providing value to shareholders.

Stock split is an indirect method of returning cash to shareholders. For every share a person holds it gets split into the mentioned ratio, making sure the total value remains the same but the value per share decreases and the number of shares increases. As the number of share increases the share holder has more upside potential of the cash it can generate as the base or the value of the share has decreased. For Example A share at Rs.100 is split for 3:1, the shareholder would now hold 4 shares worth Rs.25, with a smaller base of Rs.25 there is more chance of increment in the price of the share as the share is now fairly/under valued when compared to before split, moreover new investors would be encouraged to buy the shares post split.

A Stock split would not directly lead to the return of Cash to shareholders. A stock split is a process to allocate more shares to existing shareholders but during the process, share prices drop proportionally. A stock split would lead to an increase in the shareholder base while keeping market cap & valuation impact. Companies engage in stock split primarily for: (a) Affordability: Companies may split their stock to make it seem more affordable to investors, even though the underlying value remains unchanged. (b) Liquidity: Stock splits can improve trading liquidity. (c)Perceived Growth: Small investors may perceive the stock as more accessible and buy it, boosting demand and prices.

While not directly returning cash, stock splits increase the number of shares available to shareholders, making the stock more affordable and potentially boosting liquidity and market perception.

Tender Offers: Companies can buy back shares directly from shareholders, often at a premium, to return cash without affecting ownership structure. Special Dividends: One-time cash payments can be issued to shareholders, typically larger than regular dividends, to distribute excess cash. Stock Dividends: Instead of cash, companies may issue additional shares to shareholders, increasing their holdings without immediate cash outflow. Cash Flow Rights: Companies can grant rights to future cash flows, allowing shareholders to receive income without diluting ownership. Share Buybacks: Firms repurchase their own shares, reducing outstanding shares and potentially increasing share value for remaining shareholders.

Some ways to offer cash to shareholders rather than dividends include: 1) Tender Offer : In Tender offer a company makes an offer to buy back shares at premium in public market at current price, allowing investors to sell their shares back to the company and shareholders receive the return in cash. The price at which the company purchases from shareholders is typically at premium or which is more than market price. Eg: ABC ltd listed on NASDAQ at 20$. The company may purchase it for 30$ where investors can get gain of $10 each. 2) Spin off: The company creates a new, independent company by distributing new shares of this entity to existing shareholders. This can unlock value if the market perceives the new company more favorably.

One way that is becoming popular is using excess cash in the company to buy a complementary business that is cash flow positive. This increases the shareholder value in the long run and it also opens doors to bigger and more unique projects that weren't possible previously.

Similar to stock dividends, bonus issues involve issuing additional shares to shareholders without cash payment. These additional shares are distributed as a bonus based on the number of shares held.

Each of the methods above has its own advantages and potential drawbacks, depending on the company's financial situation, market conditions, and long-term strategy. Companies may choose one or a combination of these methods to return value to shareholders in a manner that aligns with their overall goals and circumstances.