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Why Goldman Sachs Could Be a New Safety Stock
Share Buybacks Surge in China
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The Goldman Sachs was among the fiercest trading house but currently it becomes stock for widows and orphans. It is very interesting to note that it becomes the largest dividend boost stock on record because in the past the bank has always preferred to buy back its own shares or reinvest the capital instead of giving cash in the form of dividend to the shareholders. This is done by the bank as an annual examination of their ability to withstand a recession. This news was accepted by the investors open heartedly as dividend boost is a surprise for investors and makes the stock price to increase. Due to the increase in the dividend rate it attracts the investor who is interested in other reliable and less volatile stocks for the steady dividends. This move benefited the financial service firm to offer the dividend as its competitor is having higher growth rate in dividend as compared to Goldman. Thus the increase in dividend is the latest sign of the bank transition.
In the past share buyback was allowed only in exceptional case but now regulators made share buyback easier. It is worth noting that the companies in Shanghai and Shenzhen have bought back 93.6 billion Yuan ($13.6 billion) of shares this year. The interesting fact is that largest buyers are the well known companies of the China such as Mongolia Yili Industrial Group Co. This action was encouraged by the authorities of the country to put a floor in a sagging market. Some companies prefer buying back their own share to generate the better return. In addition to this some smaller firms are also buyers as decreasing share price increases the pressure on the main shareholders who have pledged their shares as collateral. Thus buyback helps to support the share prices. Thus this reports the growing pessimism about the economy of the China among the entrepreneurs.
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