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It is a mean to return money to shareholders. The reason it is used over paying dividends is tax optimization. If you pay out the dividend, the shareholders nee
by xyzzyz 10y ago
It is a mean to return money to shareholders. The reason it is used over paying dividends is tax optimization. If you pay out the dividend, the shareholders need to pay income tax. If you do stock buyback, the shareholders need to pay capital gains tax, which is deferred until sale, and can even be offset by losses incurred on other capital holdings.
- kbutler 10y agoThere is also a different level of expectation: investors expect dividends to continue and to increase year-by-year. Stock buybacks produce much weaker investor expectations. Oh, and stock-option holders (employees/management) benefit from share buybacks, but not from dividends.