[beagle3]

No, they aren’t. Buybacks push stock price higher, which also makes a difference for option values in a way that dividend don’t.

Also, they are efficient in that they defer the taxation to the point of share sale, but they are inefficient in that holding a stock for less than a year in the US taxes them at the much higher short-term capital gains rate.

Furthermore, the dividend is cash, it cannot go to zero without giving you a chance to realize it - whereas a stock can go to zero at any time (and many will likely do shortly). I was a small investor in a company that did a respectable 5X exit for shares of the purchaser. I was thus locked up for 6m, during which they did a stock buyback but later promptly went down by 80 percent for reasons unrelated to the purchase of the company I was an investor in.

What was supposed to be a nice 5X exit, turned to a meager 1.5X, and I was extremely lucky that the lockup ended September (that is, same year) because otherwise, for tax reasons, I would have been approx -0.5X (that’s all my investment and then half again) on a 5X exit — as I didn’t have any taxes profits in the following years to net again. (You can carry losses forward for tax reasons, not backwards).

Dividends and buybacks are similar when everything is hunky-dory but never equivalent.

[AznHisoka]

I am not a financial expert but how are buybacks reflected in a company’s balance sheet?

My theory is that buybacks give companies a false sense of complacency. If they do $1 billion worth of buybacks, it doesn’t feel they are really “giving out” $1 billion back to investors. Rather, $1 billion in cash just got converted to a long term asset(their shares). Thus this is how airlines get into a cash crunch. They are lulled to believe they can go crazy with buybacks with no consequences.

If instead they did a special dividend for $1 billion, they would immediately feel the consequences. It is money taken straight out of their bank. Thus they would of course consider more carefully how much to give as a dividend.

Just my theory and why I am against buybacks and for dividends only.

[beagle3]

Stocks bought back disappear (making each remaining share reflect a larger percentage of the company). It is in general the reverse of a public offering in which money comes in and new shares come into existence (making each previously existing share represent a smaller part of the company).

This is not technically exact, but probably a good mental model.