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Comment by habosa | Hacker News Reader

Nice site! I agree, this information is generally pretty hard to find.

I hate that dividends have such disadvantageous tax treatment in America because I think dividends are the healthiest relationship between companies and investors. They try to make money and then give you some of it. As long as the dividend amount is healthy for both the investors and the company your interests are aligned.

Stock buybacks are such shenanigans in comparison: they make money and use it to inflate the value of their shares. Often they do this to hit certain price targets that help with executive compensation (or just image). And in order to actually get your profit you have to sell, which means you’re no longer an investor.

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> Stock buybacks are such shenanigans in comparison: they make money and use it to inflate the value of their shares.

Nothing is inflated if you think it through, since the market capitalization does not change.

By that logic, is issuing new stock (or even stock splits!) virtuous, since they both decrease the price per share?

I don’t think dividends are a great incentive as they encourage short term wins over long term thinking.

Even if you follow a dividend reinvesting strategy?

I think the parent comment was talking about the companies. Instead of re-investing profits into the company -- long-term thinking -- they just pass them over to the investors -- short-term wins.

"And in order to actually get your profit you have to sell, which means you’re no longer an investor."

But that is basically because the company bought some shares for you. So if you sell to create your own kind of dividend makes no difference (other than maybe how taxes are handled and psychological).

Thanks! I agree that conventional stocks can be a hassle to manage, and intuitively like an income-based approach.

> I hate that dividends have such disadvantageous tax treatment in America

What do you mean by this? Qualified dividends are taxed at long term capital gains rates, which is an enormous advantage compared to nearly all other forms of income.

Dividends are taxed twice: once as profit to the company issuing the dividend and once when the recipient receives it.

Isn't this the normal cycle of money? Continuing the example, the recipient spends some of this dividend money at Starbucks and pays sales tax. Then Starbucks pays income tax on the money and the cycle repeats.

Yes, money keeps being taxed but the number of tax events changes depending on the path the money travels. It can have more or fewer taxable events.

That's not all! Companies are allowed to use debt to buy back their stocks.

Nobody is questioning the fact that they’re allowed or not, it’s an unhealthy practice

I assumed that was implicit in my reply.

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