How are stock buybacks any worse than dividend payouts to investors?
I get how they are logistically different, but to me, whether you give the investors cash that they use to buy more stock, or you internally increase the value of a stock by buying it back with company funds, the result is the same – Investors get richer at the cost of investment.
Not saying buybacks aren’t bad, but I guess I just don’t understand the hate relative to dividend payments.
In: 98
A lot of people dislike both. It’s easy to get upset at an airline that’s bailed out in 2001, spends billions on dividends/buybacks 2002-2019, and then is bailed out again in 2020.
Reasons to dislike buybacks specifically:
* Tax avoidance as compared to dividends. People get mad that corporations avoid taxes.
* Buybacks “allow” companies to issue more stock as compensation, which can muddle a company’s profitability and make a company look more profitable. Some people complain that companies do buybacks to make it look better when they give the CEO $$$$$ through stock
* Companies that initiate buybacks pretty inherently have non public information about themselves. If I buy/sell stock because I know top secret information, it’s illegal insider trading. Companies shouldn’t be able to do insider trading either.
Edit- wanted to add one more note here:
Stock buybacks are tax advantaged, as many people have brought up. A dividend is immediately taxable, a buyback passes value on that’s not immediately taxable. This is great for investors with taxable holdings of the company (investors with brokerage accounts, executives with stock holdings). One downside is that there’s fees companies pay to conduct stock buybacks. Not huge fees, but some commission to execute it.
A lot of people mostly don’t have taxable stock holdings. They have 401ks, or IRAs, or pension funds. For them, the tax benefit of a stock buyback is MEANINGLESS. They wouldn’t pay taxes on the dividends, they lose out a little from the fee for the buyback, they’d be better off with a dividend. If you only have stocks in a 401K (which is a large percent of America) then stock buybacks is just extra fees for you so rich investors and corporate executives get to delay paying their taxes.
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