[bern4444]

Stock buy backs are simply a tax efficient return to investors that are an alternative to dividends.

They are tax efficient since dividends are taxed before they can be reinvested (back into the same stock or any other investment) whereas stock buy backs allow the investor, rather than the company, to decide when to incur the taxes which would be incurred by selling the appreciated shares.

Financially they are equivalent.

The only real argument against either buy backs or dividends concerns if the company is better off pursing this return of investment to shareholders or investing the money back into the business to pursue growth. Finding the balance between these two is critical for every company.

[c22]

The other difference is that with a buy back your return is reinvested in the stock. The company could make a mis-step tomorrow and make it go away. With a dividend the return is liquid and risk free. If you are re-investing your dividends in a taxable account you should prefer buy backs instead. If you are hoping to use your returns for cashflow you will prefer companies that issue dividends. If you're investing in a tax-deferred or tax-free account then it shouldn't matter.

In the US in 2024 you can collect up to $94k in qualified dividends and owe no federal taxes.

[rileymat2]

Stock options are not adjusted for regular dividends, to the option holder these are absolutely not financially equivalent.

This is where the executive compensation conspiracies come in, buybacks are better in this case.

[blitzar]

Stock option pricing explicitly takes into account the expected dividend yield.

Option strike prices can be adjusted for one off events like stock splits / reverse splits, special dividends etc.

[rileymat2]

Yes, the expected dividends, however growth in stock prices are due to /unexpected/ risk adjusted growth. ISO options often have a 10 year period after vesting, it is unlikely to be predictable in pricing.

Also, the exercise amount has to be the current share price or higher or you pay gains on them.

Edit: You see the same thing with unvested RSU’s if the company does not do something extra but not required.

Edit2: The price you pay for the option on the open market accounts for it as best they can, but does not account for grants in ISO options and unvested RSU’s. Largely held by insiders. Hence the conspiracy theories.