[ragazzina]

???

This returns money to investors just like dividends do (but it's better tax-wise).

[ramesh31]

>This returns money to investors in a way similar to dividends.

Not really, it only helps to prop up the stock price. It has no effect on actual yield the way dividends do.

[devoutsalsa]

From the company's perspective, dividends and stock buy backs are identical.

Say a company has 10 shares @ $10/share, w/ a total value of $100. The company has $10 to return to shareholders because it can't make better use of the money internally.

----Share buyback example------

- company buys back 1 share @ $10

- the company's value is decreases by $10 for having distributed the cash

- company now has 9 shares of stock at $10/share, for a total value of $90

-----Dividend example-----

- company distributes $1 to each shareholder

- the company's value is decreases by $10 for having distributed the cash

- company now has 10 shares of stock at $9/share, for a total value of $90

[infecto]

Yes really. It is less about "propping" and more about returning capital back to investor and doing it in a way that does not trigger a tax event.

- Buybacks are more tax efficient

- Buybacks can be a signal that the company thinks its current market price is undervalued.

- Can increase control to existing shareholders.

[ramesh31]

Sure, but that's all hypothetical. There is no law stating "higher EPS = higher share price". Stocks can (and do) still go down after a buyback. Whereas dividends are laid out exactly ahead of time and can be predicted.

[infecto]

Whats hypothetical about it? Nothing I said was hypothetical. The company is doing some math to determine that the roic is below their coc or some similar measurement. So they could pay a dividend or buyback shares. Now it is true that the motivations for either could have many reasons. It is also true that after the buyback happens, prices could go back down...it is a market with changing information constantly. So yes a dividend is not a buyback but they are both ways to return capital to shareholders.

[neogodless]

The one thing it does not do with their cash on hand is "send it the common pool to fund current business operations."

[Retric]

Buybacks literally hands money to current investors. They can only buy shares from people who own shares Ie investors.

Individual investors get three options they can some shares and maintain the exact same percentage of the company making this equipment to a dividend, they can liquidate more shares which a guaranteed buyer propping up the price, or they can avoid selling shares and simply own more of the company. The final option is more tax efficient because there’s no taxable event unlike a dividend where you pay taxes before buying more stock.