[murbard2]

This is very plausible.

Dividends are silly in a world where you can achieve the same result and save everyone 20% tax by doing stock buybacks instead. It's also silly to strongly differentiate between dividend paying stocks and non dividend paying stocks as opposed to focusing on the business' cash flow, unless you're purposely avoiding dividend paying stocks because they suck from a tax perspective.

Yet, dividends are entrenched in many investor's psyche. Even official regulatory training in the US teaches registered representative that it's a good idea to recommend dividend bearing stocks to people who want "income" from their investments, which is a fallacy. Large mutual funds also have special categories for stocks providing high dividend yields.

Sad that this is the strategy as opposed to leveraging the incredible opportunity they have from their fabs.

[candiddevmike]

Once upon a time dividend payments were _the reason_ to hold stock in companies. Funny that tax loop holes and the borrowing-against-assets-infinite-money-cheat rendered dividends "silly".

Yes this is a shit situation for Intel, but public companies should be paying dividends, IMO.

[robjan]

I have a feeling that increases in foreign investors also discouraged companies from issuing dividends. For example, I pay 0% capital gains tax but have to pay the US government (where I have never stepped foot) 30% on dividends.

[hnfong]

Agreed. As a non-US tax resident, this factors a lot into whether a buy a stock or not. The 30% flat dividend tax rate pushes a lot of potentially enticing stocks to a bad buy for value.

I wonder whether this sentiment also contributed to the meme stocks popularity, since outside the US nobody really buys US stock with high dividends and are pushed to speculate on volatile stocks ala "stonks go up"..

[murbard2]

Agreed.

In theory you can claim it back, but it's a major pain in the ass. Some ETF issued outside the US and holding US stocks will do it.

Other strategies to avoid this annoyance include:

1. selling on the ex-dividend date and buying the next day.

2. buying a long-date call and selling a put instead of holding the stock

3. simpler version of 2: buy a deep in the money long-dated call, you won't be paying all that much for the convexity, and you don't have to think about dividends.

[chrisbolt]

If stock buybacks are more tax-efficient, why are dividends better?

[freetime2]

I had to think about this for a bit, and then ended up Googling it. According to Investopedia [1] the key reasons buybacks are controversial are:

> Artificial financial results: The impact on earnings per share can give an artificial lift to the stock and mask financial problems revealed by a closer look at the company’s ratios.

> Abuse: Companies can use buybacks as a way to allow executives to take advantage of stock option programs while not diluting EPS. However, there isn't much evidence supporting the widespread belief that this happens.

> Price bumps: Buybacks can create a short-term bump in the stock price that some say allows insiders to profit while suckering other investors. This price increase may look good at first, but the positive effect is usually temporary, with equilibrium regaining when the market realizes that the company has done nothing to increase its actual value. Those who buy in after the bump can then lose money.

Basically there is a greater potential for price distortion and abuse with buybacks than dividends. Of course dividends can be gamed too, but as a relatively unsophisticated buy-and-hold investor I feel a lot more confident about buying a stock with a solid yield and long history of increasing dividends than I do about buying a stock with no yield whose valuation has shot up recently and is sitting near its record high.

[1] https://www.investopedia.com/articles/financial-advisors/121...

[Rathseg]

3 more reasons why buybacks are bad:

1. There have been a studies that show companies are very good at doing buybacks near market highs rather than market lows so they are not efficient use of capital. Note that there have also been studies that try to claim stock buybacks do deliver long term value, but I have not found them convincing.

2. To build on the price bump point, the biggest beneficiary is actually short term activist investors and traders(who conveniently have similar time horizons as the executives) rather than long term shareholders.

3. Frequently buybacks are funded by draining reserves and/or with debt(especially when interest rates were low), this leaves companies weak when economic shocks happen like when the pandemic hit and we had to bail out the airlines who had no cash because they had been spending all their spare cash on buybacks. This could happen with dividends too but it is harder because it is an ongoing 'expense' you have to plan for because you pay it out every quarter rather than allow large sudden expenditures like you have with buybacks.

https://hbr.org/2020/01/why-stock-buybacks-are-dangerous-for...

[lmm]

Dividends are cleaner and easier to understand. The tax code shouldn't be encouraging companies to make things more complicated than they need to be.

[hedgehog]

I think the decisive advantage of dividends was that buybacks weren't legal until the 80s.

[murbard2]

The reason to hold stock is that they return value to shareholders. Stock buy backs are functionally dividends but they are taxed more fairly. They also work better for foreign investors, and are a much cleaner and simpler mechanism than directly sending cash to shareholders.

[BuyMyBitcoins]

Stock buybacks also help boost numbers like Earnings Per Share without having to actually earn more.