I guess you could argue that maybe the buyback was a bad decision (ie. sacrificing long term gains for short term gains), but the logic could be applied to dividends as well.
Six months or a year later, the business cycle turns a bit causing all stocks to go down, the business environment changes to make the business less attractive (buggy whip manufacturers are no longer a growth industry), an outside event (tariff changes?) costs X money, or X's CEO publicly abuses a service worker causing X to be disliked by the market. In whatever case, the valuation of X which was still about $40/share goes down to $30/share. Or $15/share.
The share price of a stock has essentially no attachment to anything in the real world, and can and will fluctuate according to real-world events, whims, or just randomly.
From investors. At the current market price; i.e. closer to $20/share than $40/share. Keep in mind two things: the person who sold the share doesn't get any further income from that share, unlike a dividend, and the company won't buy back shares if they believe the shares are fairly- or over-valued. They only buy back shares if they think the stock prices is too low.[1]
The buy-back only acts as a "dividend" to those who sell after the buy-back has raised the stock price, not to those who sold into the buy-back.
"Moreover, your shares in the company increased. If you had 1 share to start with, after the buyback you have the equivalent of 2 shares. Your "dividend" is the extra share, which the company bought for you using the cash they would have otherwise paid out."
Uh, are you confusing buy-backs with stock splits? Before the buy-back, you have one stock share. After the buy-back, you have one stock share, which represents a larger share of the corporation's earnings and book value. Bought-back shares disappear[2]. Your "dividend" is the difference in price of that one share before and after the buy-back.
And the price of that share is free floating, moving according to market forces.
[1] In theory. Ideally. They can also do so to manipulate the stock price, the strike price of management options, and other things that are generally bad for investors. Stock buy-backs have a legitimate purpose, to signal to investors that management considers the stock price to be too low. They're not a substitute for dividends.
[2] They go into the company's treasury, where they can be re-sold later to raise money without affecting dilution, IIUC.
As opposed to the money that it used to pay the dividends?
>If the shares were appropriately priced before then each outstanding share is worth about the same after.
Right, but now you paid some number of share holders to exit their positions. It's the equivalent of buying $10 worth of stocks and giving it to you as the "dividend", rather than giving you $10 cash.
Stock prices move based on unexpected information. If you've done your homework on the company's fundamentals, dilution from stock-based compensation has already been factored into earnings per share.
(Bad acquisitions are another matter - a much more common failure mode for dumb companies is to blow a lot of money on acquisitions and then fail to integrate the acquisition in a way that increases the bottom line.)