Bloomberg reports that Yahoo! Inc. (NASDAQ: YHOO) investors are urging Chief Executive Officer Marissa Mayer to buy back shares rather than pay a dividend with the $3 billion raised from selling a stake in Alibaba Group Holding.
The stock price has barely budged this year, and repurchasing shares would signal that Mayer has confidence in Yahoo’s growth prospects. Buybacks suggest that management believes the stock is undervalued. A dividend, on the other hand, may suggest that the company feels it has to make an effort to hold on to its investors. Also, long-term investors tend to favor a repurchase because it adds value to shares without triggering a tax bill.
Yahoo! remains one of the few large tech companies that does not offer a dividend. Apple Inc. (NASDAQ: AAPL) said earlier this year that it would pay its first dividend in 17 years, in addition to a $10 billion stock buyback. In August, competitor AOL Inc. (NYSE: AOL) announced a special dividend and a $600 million repurchase program.
Yahoo!’s first share repurchase was announced in 2001 was for $500 million. The company has since had with three more buybacks, each at $3 billion. The most recent was in 2010. The previous three programs lifted the share price by an average of 13% three months after they were announced and by 19% after six months.
Mayer and the board of directors are currently deciding how to distribute the remaining proceeds from the Alibaba transaction, according to a spokesperson.
The stock is inactive in premarket trading but closed Friday at $16.09 in a 52-week range of $14.35 to $16.79.
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