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Dividends are much better. Once the market speaks a formerly mighty stock can drop very quickly. I'd rather have the cash now then a slow reduction in supply. A

Dividends are much better. Once the market speaks a formerly mighty stock can drop very quickly. I'd rather have the cash now then a slow reduction in supply. After the "great recession crash" we saw how demand can change and even with less supply see huge drops in stock price.

yummyfajitas 16y ago
If you prefer dividends, sell shares back to the company in proportion the share buyback. It's mathematically equivalent to dividends (you own the same fraction of the company before and after), but you pay less tax.
- tocomment 16y ago
  Any references on that? It sounds possible, but I thought I had heard of cases of stock buybacks not increasing the share price. I guess obviously if a company does a buyback but the stock goes down for unrelated reasons then you're really not gaining anything.
  - yummyfajitas 16y ago
    Simple arithmetic. If you hold 100 shares of 100,000 outstanding shares, you own 0.1% of the company. If they buy back 5000 shares and you sell 5 shares, you still own 95 shares of 95,000 outstanding shares (0.1% of the company) + cash. That's exactly what a dividend would do. Silverlake is correct to point out that this doesn't apply to small investors, however.
    - adamilardi 16y ago
      95,000 is not correct those 5000 shares don't disappear. They are still outstanding. The only way I know to decrease shares is a reverse split or increase them via an offering
      - yummyfajitas 16y ago
        If the shares are retired, which is what we are discussing in this case, they do disappear.
      - adamilardi 16y ago
        Thanks for responding. can you point to me some articles explaining more about retired shares?
  - T_S_ 16y ago
    First semester Corporate Finance. Try Brealey & Myers or Copeland & Weston. The author may have a point that he was signaling they had nothing better to do with the funds. But, it's hard to say the share price would not have been worse, since this happened in a downtrending market. There is a potential confounding fallacy in that the author doesn't seem to get.
  - pbhjpbhj 16y ago
    >I guess obviously if a company does a buyback but the stock goes down for unrelated reasons then you're really not gaining anything. Unless they held the stock above the falling trend. I felt this was a potential flaw in the analysis - the stock price kept falling but that was not necessarily related and could have crashed completely if it weren't for the buyback, we can't tell; it's not science.
- silverlake 16y ago
  For small investors (< 1000 shares), the transaction cost will be higher than the tax on dividends.
- adamilardi 16y ago
  It's not mathematically equivalent because a share buyback comes from the open market. The # of shares don't decrease with a buyback

yummyfajitas 16y ago

If you prefer dividends, sell shares back to the company in proportion the share buyback. It's mathematically equivalent to dividends (you own the same fraction of the company before and after), but you pay less tax.

tocomment 16y ago
Any references on that? It sounds possible, but I thought I had heard of cases of stock buybacks not increasing the share price. I guess obviously if a company does a buyback but the stock goes down for unrelated reasons then you're really not gaining anything.
- yummyfajitas 16y ago
  Simple arithmetic. If you hold 100 shares of 100,000 outstanding shares, you own 0.1% of the company. If they buy back 5000 shares and you sell 5 shares, you still own 95 shares of 95,000 outstanding shares (0.1% of the company) + cash. That's exactly what a dividend would do. Silverlake is correct to point out that this doesn't apply to small investors, however.
  - adamilardi 16y ago
    95,000 is not correct those 5000 shares don't disappear. They are still outstanding. The only way I know to decrease shares is a reverse split or increase them via an offering
    - yummyfajitas 16y ago
      If the shares are retired, which is what we are discussing in this case, they do disappear.
    - adamilardi 16y ago
      Thanks for responding. can you point to me some articles explaining more about retired shares?
- T_S_ 16y ago
  First semester Corporate Finance. Try Brealey & Myers or Copeland & Weston. The author may have a point that he was signaling they had nothing better to do with the funds. But, it's hard to say the share price would not have been worse, since this happened in a downtrending market. There is a potential confounding fallacy in that the author doesn't seem to get.
- pbhjpbhj 16y ago
  >I guess obviously if a company does a buyback but the stock goes down for unrelated reasons then you're really not gaining anything. Unless they held the stock above the falling trend. I felt this was a potential flaw in the analysis - the stock price kept falling but that was not necessarily related and could have crashed completely if it weren't for the buyback, we can't tell; it's not science.
silverlake 16y ago
For small investors (< 1000 shares), the transaction cost will be higher than the tax on dividends.
adamilardi 16y ago
It's not mathematically equivalent because a share buyback comes from the open market. The # of shares don't decrease with a buyback