> Like higher salaries, social programs, or just R&D in general.
Because that could be a waste as well.
Stock buybacks are just a tax-advantaged form of dividends (and shouldn't be legal for those reasons). Just do dividends.
Because that could be a waste as well.
Stock buybacks are just a tax-advantaged form of dividends (and shouldn't be legal for those reasons). Just do dividends.
The main idea people need to remember is that if a company buys back its stock, someone else is selling it.
For equality sake, assume that it's been held for a year (so both the cap gains and equivalent dividend would be taxed at the same rates).
For an X amount of dollars, dividends and buybacks are going to generate the roughly a similar kind of 'tax footprint' for lack of a better term. The potential taxable events are just filtered to 'the entities that wanted to sell their shares' vs 'every equity holder'.
A dividend is always taxed as income.
If you inflate the price of the stock to pay the dividend (stock buyback), it's taxed as capital gains.
I think people fixate too much on pricing dynamics. Kind of at a Gaussian surface level, the simple way to explain a price is eps * earnings multiple, where your inflated demand dynamics get lumped in with the multiple. The issue is an earnings multiple encompasses so much information as to be of little use, it's not trivial to quantify anything from it.
Let me be clear, buybacks can be a bad use of capital. The stock can go down to any number of factors, general market downturn etc. A buyback is an investment of the company in itself, and investments can be bad.
But if you have a number of earnings and a number of shares, if you reduce the number of shares, you have more earnings per share. At a constant multiple, an increase in eps should dictate an increase in price. That's as real as you and me.