| You're alluding to the double taxation problem with dividends. This is a problem and has had a bunch of bad solutions (eg the passthrough tax break from 2017) when in fact the solution is incredibly simple. In Australia, dividends come with what are called "franking credits". Imagine a company has a $1 billion profit and wants to pay that out as a dividend. The corporate tax rate is 30%. $700M is paid to shareholders. It comes wiht $300m (30%) in franking credits. Let's say you own 1% of this company. When you do your taxes, you've made $10M in gross income (1% of $1B), been paid $7M and have $3M in tax credits. If your tax rate is 40% then you owe $4M on that $10M but you have already effectively paid $3M on that already. The point is, the net tax rate on your $10M gross payout is still whatever your marginal tax rate is. There is no double taxaation. That being said, dividends have largely fallen out of favor in favor of share buybacks. Some of those reasons are: 1. It's discretionary. Not every shareholders wants the income. Selling on the open market lets you choose if you want money or not; 2. Share buybacks are capital gains and generally enjoy lower tax rates than income; 3. Reducing the pool of available shares puts upward pressure on the share price; and 4. Double taxation of dividends. There are some who demonize share buybacks specifically. I'm not one of them. It's simply a vehicle for returning money to shareholders, functionally very similar to dividends. My problem is doing either to the point of destroying the business. |