[mantasm]

It's a little more complicated than that.

Say a company is worth $1000, and has 100 shares outstanding, for a share price of $10.

They can pay a dividend of $100, reducing their value to $900 (share price of $9) and paying out $1 per share to shareholders. In the end, the shareholders still have $10 of value per share, but some was forcibly liquidated!

Alternatively, the company can do a stock buyback of 10% of their shares. They spend $100 destroying 10 shares. The company is now worth $900 and there are 90 shares outstanding - investors still have $10 worth of value, whether they sold their shares or not.

In the end, no value is created in either scenario - capital is just returned to shareholders.

This is still a simplification because: 1. Stock prices often rise on the announcement of new dividends/share repurchases for similar reasons. It's a positive signal to investors that either of these things will happen, and affects their valuation of the firm. 2. Investors like capital-efficient businesses, and either of these methods of returning capital can actually create value for investors.