why are stock buybacks bad?
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Two motivations to point out.
1. Often, executives and board members are paid in stock options. The theory is they only make more if they drive the share price up, which is a big motivator for shareholders. Using company funds to buy shares back can make these execs more. A 20% move in one year can be millions for a CEO.
2. If a responsible company is paying its employees well, carries no debt, and is sitting on piles of cash, it’s reasonable to hand the excess cash to shareholders. Dividends are taxed as ordinary income and extra capital appreciation (from buybacks) is taxed at the capital gains rate, typically less. So, in theory, it’s a more tax efficient way to distribute cash to shareholders. The noise of the markets can get in the way of this.
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