The Motley Fool, which the Jaded Consumer has criticized before (for offering users bizarre, opaque, and inconsistent return calculations, for selling "guidance" sure to get investors lost, and being extremely late to the party with shallow analysis based on easy-to-learn information about major worldwide companies with one of the most valuable brands on the planet, and using criminally obsolete information to support investment suggestions), published an article proclaiming that American Capital was wasting your money by repurchasing its shares on the open market.
I've submitted an article to Seeking Alpha about American Capital Ltd. (which went live here), which addresses the sensibility of the share buyback.
What I'd like to add here – because it's the sort of dufus claim that's in line with the rest of the Jaded Consumer's analysis of Motley Fool analytic powers – is that the Motley Fool article suggests that one of the reasons that ACAS' share buyback was bad for investors is that ACAS could not afford to pay a dividend. ACAS has been generating cash from profitable portfolio company investments to the tune of hundreds of millions, and even billions of dollars. (The 2010 results included $1.3 billion in cash proceeds from realizations; the 2009 results included $1.1 billion in realizations.) During the last-announced quarter, ACAS had $260 million in cash realizations. Cash isn't exactly in short supply at ACAS. While reducing investments by $615 million during the first nine months of 2011 (as measured by FAS-157-compliant "fair value"), ACAS reduced its debt by $740 million, ensuring that ACAS could not be forced to make debt payments against a deadline in the near term.
ACAS ended the first nine months of 2011 with $187 million, even after spending $75 million retiring shares under ACAS' new dividend policy, which favors share retirement to dividends while shares trade below NAV. On what basis does Mr. Smith of The Motley Fool conclude ACAS can't afford a dividend? What makes Mr. Smith think paying a dividend (especially at a time regulations do not require it) is of any interest to management when better uses of cash are available?
With respect to the superiority of ACAS' below-NAV share buybacks to a mere dividend, I'll link the Seeking Alpha article once it's live. But the short story on The Motley Fool's analysis is this: the article doesn't help you see your money wasted at ACAS, it only helps you to waste your time looking for reason in a lazy pile of drivel. The Motley Fool plainly wanted to sell clicks more than it wanted to provide well-reasoned analysis. Remember that the next time The Motley Fool advises you about your money.