When considering whether to conduct share buybacks or dividends, or both, the key question is which one will elevate the market cap the most.
Because there have been dividends and share buybacks in the past, there is a limited body of evidence to give us clues about which approach enhances the market cap most efficiently. Also, many other organizations have faced this issue and there is much we can learn from their experience.
Of US based S&P 500 companies, they spent 50% more on average on share buybacks than dividends. Dividends are more likely to be offered by utility and well established financial companies than tech sector companies. This is partly due to the stable revenues of the utility companies compared to tech companies. Dividends appeal more to investors looking for low risk investments than investors with a higher appetite for risk and reward. Our network is definitely far on the the high risk / high reward side of the spectrum, suggesting dividends are a mismatch in some ways.
At one point when the NuShare market cap was below 1.5 million, our annualized dividend yield reached at least 29%, which is unheard of. It appeared to have little or no effect, even though $410,000 was delivered as dividends. The argument could be made that most of that was as one issuance of BlockShares and that the two early Peercoin dividends were not regular either. While dividends might be able to be sustained for a longer period going forward, it is unlikely that they will be consistently handed out, or consistent in terms of the amount distributed.
NSR has expectionally low liquidity, much less than any other top 20 crypto asset. This suggests NSR may benefit more from buybacks than more liquid assets.
Share buybacks are easier for the shareholder because they require no action, while dividend keys must be exported and then possibly transferred to an exchange and sold.
The NSR price has added around 1.5 million USD in market cap in the five weeks during which approximately $14,000 was spent on share buyback. It is likely most of this market cap increase is a result of the rise in the Bitcoin price. Still, the price of NSR in Bitcoin has risen 18.5% during the short period in which buybacks have been conducted. 18.5% of our market cap is $470,000. While there are many confounding factors, I suspect the majority of that $470,000 in market cap came from the approximately $14,000 in share buyback. That is stunningly efficient if true. Another way to examine the effectiveness of share buybacks is to look at the what effect it would have on the price by eating up the existing NSR sell orders. Within 10% of the current price, there are only $7800 in sell orders on Poloniex and Bter, so $300,000 in market cap could be created with $7800 in share buybacks, at least for a moment. The rise would bring in more sell orders, but I suspect half the increase could be retained (although I admit that isn’t based on any evidence), for a gain of $150,000. Additional evidence that share buybacks have had a positive effect is that NuShares rose from being ranked 24th to 18th on coinmarketcap.com during the recent buybacks, which can’t be attributed to the rise in the Bitcoin price.
While I concede the evidence is inconclusive due to confounding factors, it appears dividends have performed poorly for us in the past while share buybacks have had a spectacular effect on the NuShare price. Therefore, I am inclined to oppose dividends at this time. It may make sense to allocate a small percentage of extra tier 4 buy side funds to dividends to observe the result as an experiment, however. 25% of the share buyback/dividend pool is the most that should be allocated to dividends for such an experiment, in my opinion.
Before too long we will want to look at using extra funds for development of various kinds. However, I doubt that during a wild Bitcoin rally is the right time to do that. Now is a time to seek maximum visibility by doing everything we can to enhance the market cap right now while the crypto economy is getting a high level of attention. Share buybacks are our best bet to accomplish that.