RE:Why Buy High when you can Buy Lower?TVR wrote:
Looks like AAV just threw away around $20-25 million on the Dutch auction purchase with the share price now close to $8, compared to the buyback over $11. A little patience and market purchases would have saved them (and shareholders) a lot. I am not a fan of share buybacks which never seem to work out to shareholders' advantage. The share price would have held up a lot better if they had gone the dividend route instead. I don't care if management thinks the share price is too low, just dividend out the cash they want to spend and the market will revalue the shares.
The purpose of a SIB is to reward shareholders. You could say that the AAV shareholders that accepted the $11.20 offer were well rewarded. They are probably thinking about buying their shares back so they can play this game again.
The TSX NCIB rules that limit companies to gradually buying back 10% of their outstanding shares over the course of a year is the real problem. The cash flow being generated last year by some oil and gas companies was enough for them to buy back 20% or 30% of their shares. Why doesn't the TSX change their restrictive rules and allow companies to do this?
Instead, companies are forced to do SIB buybacks to get around the limitations of NCIB buybacks. The $11.20/share offer made sense in early November when it was announced but obviously AAV ended up paying more per share than they should have or could have if the NCIB / SIB rules were different. AAV might have been forced to complete the SIB before the end of the year for taxation purposes or to comply with some other NCIB / SIB rule.
Now that the SIB is finished, the NCIB can resume so AAV can buy back more shares at a fair market price without being forced to over pay for them.
Paying out dividends has its own problems. Once a company starts paying out a regular dividend, shareholders never want that to end. If the price of natural gas tanks like it has during the last week, a company might not have the cash flow to cover the dividend payment. If the price of gas stays low for a while and a company has to suspend the dividend payment, watch out. The stock will immediately get beat up and punished.
If you pay a larger one time dividend and you end up having to do this more than once, shareholders will once again expect these special payments to continue forever. When they don't, another share price beating is just around the corner.
The AAV share price is in the toilet at the moment because the weather is mild across North America during peak natural gas heating season. The AECO spot price went from $7 CDN/GJ one week to under $4 CDN/GJ this week. Natual gas focused companies like AAV have been side swiped by a bus. Hopefully management was able to get a few hedges in place at last month's prices.