> This makes no sense. Buybacks and dividends are how companies give money to investors
Dividends are totally fine (from my perspective), while. buybacks are problematic from a place where executives are bonused on share price and earnings per share, both of which can be manipulated by buybacks.
More philosophically, I think that dividends are better for society as they allow investors to realise a stream of value from well run companies rather than needing to sell their share to acquire this value.
This is obviously just my opinion though, I don't know if it matches to what the OP cares about.
Yeah I know, I just think that's a poor use of tax policy. The only case where buybacks make sense to me is for companies that give employees RSUs, in which case buybacks compensate for the dilution.
Notionally there's not a difference between dividends and buybacks. (That's somebody's theorem... Modigliani maybe?) The fact that our tax laws treat them so differently doesn't make much sense.
Why does it matter if people have to sell their shares to unlock value? Is it just the friction of small orders?
Buybacks for manipulating share prices and earnings per share are indeed silly. But they should also be trivial to compensate for by normalising on market cap instead of a single share.
Dividends in effect force you to sell while buybacks redistribute to people who want to sell/realize it. They are also more efficient tax wise.
The only good reason to pay out dividends instead of announcing buybacks is a view that your shares are overpriced. Then you can't buy them back without facing a potential lawsuit (you are making a company buy something you know is overvalued).
> This makes no sense. Buybacks and dividends are how companies give money to investors
Dividends are totally fine (from my perspective), while. buybacks are problematic from a place where executives are bonused on share price and earnings per share, both of which can be manipulated by buybacks.
More philosophically, I think that dividends are better for society as they allow investors to realise a stream of value from well run companies rather than needing to sell their share to acquire this value.
This is obviously just my opinion though, I don't know if it matches to what the OP cares about.
> Dividends are totally fine (from my perspective)
FWIW, companies are now opting for buybacks because it is more "tax efficient".
Stockholders have to pay taxes on dividends (immediately) but only pay capital gains on share price increases and only when they sell.
Yeah I know, I just think that's a poor use of tax policy. The only case where buybacks make sense to me is for companies that give employees RSUs, in which case buybacks compensate for the dilution.
Notionally there's not a difference between dividends and buybacks. (That's somebody's theorem... Modigliani maybe?) The fact that our tax laws treat them so differently doesn't make much sense.
Why does it matter if people have to sell their shares to unlock value? Is it just the friction of small orders?
Buybacks for manipulating share prices and earnings per share are indeed silly. But they should also be trivial to compensate for by normalising on market cap instead of a single share.
Dividends in effect force you to sell while buybacks redistribute to people who want to sell/realize it. They are also more efficient tax wise.
The only good reason to pay out dividends instead of announcing buybacks is a view that your shares are overpriced. Then you can't buy them back without facing a potential lawsuit (you are making a company buy something you know is overvalued).