Dilutaphobia

Investors have an irrational fear of stock dilution

Investors and companies have become obsessed with stock buybacks. Stock repurchases by public companies have tripled in value over the last ten years compared to a 50% increase in dividends. Many investors have become so buyback-obsessed that they're afraid of companies that issue new shares—they have dilutaphobia.

These folks have come to fear and resent companies that issue shares instead of repurchasing them. The fear is widespread, too. Nasdaq's website says, "Stock dilution can lead to a downward spiral in stock prices." As a result, many punters immediately dismiss companies that issue stock. But is dilution terrible for the existing shareholders? No. On average, it isn't. However, investors should study whether a company is issuing stock or not and whether it's growing because this can hint at the business's quality.

There is no reason to fear dilution because there is no evidence that it hurts shareholders' returns. Using 20 years of historical data from Capital IQ, 𝑉𝑎𝑙𝑢𝑎𝑏…