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
In theory there’s nothing wrong with stock buybacks. When a business has some extra cash and doesn’t believe that there’s an opportunity for growth through investment, sometimes the best thing to do with that money is to just give it back to shareholders. The problem is that a lot of CEOs of these big companies are compensated through stock or stock options in the company that they manage. A stock buyback is a quick and easy way to artificially inflate a company share price to the benefit of management and shareholders, even when there are better things to do with that money such as raise wages for workers or invest in new growth opportunities.
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