[abhv]

Dividends are not an efficient mechanism to return cash to investors. The recipient is forcefully taxed.

Share buybacks technically accomplish the same; the proportional increase in shareholder value should be the same. However, investors who do not want to recognize income that year do not have to; whereas investors who need the dividend income can sell a small number of appreciated shares.

[rileymat2]

I need to look at this more, but don’t dividends mostly return real current earnings where share buybacks are moving your return to future earnings which may never exist?

Also, many people are harmed by this tax treatment because a couple making 80k a year pay no tax on the dividend capital gains?

I am just saying dividends v share buybacks are not the same and have other effects.

[ghaff]

Yeah. They're different. Dividends give you cash on the barrel each quarter that is very sticky about heading in a downward direction--but tax treatment is pretty much like ordinary income in most cases.

Stock buybacks may drive stock prices upwards in an unpredictable way that may lead to being able to sell appreciated stock in a tax-advantaged way a couple years out.

Theoretically, it's all the same after tax effects but we don't live in that theoretical world.

[rileymat2]

https://www.nerdwallet.com/article/taxes/dividend-tax-rate

These are lower than ordinary income.

[ghaff]

As the article says, it depends.

[lotsofpulp]

> Also, many people are harmed by this tax treatment because a couple making 80k a year pay no tax on the dividend capital gains?

Really? I am only aware that at least long term capital gains tax applies to everyone for qualified dividends.

[rileymat2]

https://www.investopedia.com/ask/answers/12/how-are-capital-...

For the 2020 tax year, you pay 0% on long-term capital gains if you have total income of $40,000 or less; 15% if you have income of $441,450 or less; and 20% if your income is greater than $441,450.

[lotsofpulp]

Interesting, I never paid attention to that. I would guess the number of singles/couples earning $40k/$80k total per year or less and own enough stock to get material dividend income must be miniscule.

[statguy]

Lots of retired affluent people fall into that category. A $4M portfolio would throw off $80K in annual dividends assuming an average 2% dividend rate.

[lotsofpulp]

A retired couple with $4M net worth excluding home value is 97th percentile. $1M is 90th percentile.

And they surely would have a significant proportion of assets in bonds yielding a couple percent rather than stocks, so earning tens of thousands in only dividend income is probably super rare.

https://dqydj.com/net-worth-percentile-calculator-united-sta...

[colinmhayes]

Dividend tax rate is the same as capital gains rate which is what you pay when you sell your stock if you've held it for a year.

[hnfong]

AFAIK, the situation is totally different for non-US tax residents (for those without a tax treaty with US anyway).

Dividends are taxed at a flat 30% rate. Capital gains are not taxed by the US. At least that's my situation.

Companies that pay heavy dividends are a substantially less attractive buy in my case.

[bananabreakfast]

That's not true at all.

Dividends are taxed as regular income, unless they're qualified dividends then they have their own rate.

[rileymat2]

If you hold the stock for more than a year it is part of the qualification, and with some exceptions most will be.