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Basically a way to reward shareholders. They're more or less equivalent to dividend, but considered more tax efficient, because capital gains tax is lower than
by hencq 10y ago
Basically a way to reward shareholders. They're more or less equivalent to dividend, but considered more tax efficient, because capital gains tax is lower than tax on dividends.
- sokoloff 10y agoLong term capital gains and qualified dividends (which is most of them) are generally taxed at identical rates. Capital gains have a choice of timing advantage over dividends. (You can choose to take them now, or next year if you don't want the income exposure this year.) The holding period required for long-term treatment is more than enough to qualify for the qualified dividend treatment.
- Retric 10y agoThis is misleading. A dividend is a taxable event, with stock buybacks people who hold the stock can defer taxes indefinitely. In theory, a hypothetical company with a 1$ dividend every year would see it's stock price rise and fall by 1$ through this cycle. A buyback would see a continuous increase in price.
- sokoloff 10y agoIt is misleading? How could I have made that not (or less) the case? I specifically called out that choice of timing in my second sentence and explained it further in my third.
- Retric 10y agoThere is a tax advantage, it is due do the zero tax rate on assets before they where sold. Sure, if you happened to want to cash out exactly the same amount or more than the dividend then it's the same. But that's not the general case.
- deleted 10y ago[deleted]