Could you explain why buybacks lead to higher stocks as opposed to dividends? I though they were (theoretical) equivalents.
If I give a dividend, each shareholder now has 100 shares priced at $99 (assuming the typical price drop for the dividend), and $1 cash.
If I buy back 1 share for $100, now one ex-shareholder has $100 in cash, and 99 other shareholders have 1 share valued at $100.
In each case, the company has $100 less dollars, and its market cap dropped from $10,000 to $9,900. But the stock price is higher ($100) in the case of buybacks than in the case of dividends ($99).
Gone out for a reputable source:
CFA [1]
John Cochrane: “That was the big point. Share buybacks are a good way to get money out of firms with no ideas, into firms with good ideas.” [2]
[1] https://www.cfainstitute.org/en/membership/professional-deve...
[2] https://johnhcochrane.blogspot.com/2018/04/buybacks-redux.ht...
If the management team is compensated with unvested stock or options, they receive the benefits from share buybacks, but not from dividends (since those only go to actual shareholders) - which is part of why management teams prefer buybacks.
Having an attractive dividend policy can make a stock more valuable to certain investors, but the act of actually paying out a scheduled dividend basically only makes the stock price go down.