Comment by helsinkiandrew
13 hours ago
> Share buybacks allow companies to reward executives directly as their compensation is tied to stock price.
To be fair share owners also like the stock price to go higher, they also like dividends (and higher dividends would tend to drive the stock price higher too), but an X% increase in share price caused by buybacks is favoured over an X% dividend because it isn’t immediately taxed.
My understanding is that executives prefer buybacks because they mostly are compensated with stock options, which don't pay dividends (until exercised) but which appreciate disproportionately from buybacks.
Also, I believe in the US ordinary dividends are taxed at the income tax rate which is much higher than the capital gains rate.
It doesn’t make sense to compare ordinary dividends to capital gains - either compare ordinary to short term gains or qualified to long term gains.
with everything at record highs we'll see if we continue to prefer inflated share price over reinvestment in the business or increased dividends.