3 ms·
My impression is that modern firms "pay dividends" by doing share buybacks, which are equivalent to dividends but taxed less (I'm nowhere near an expert here, i
by woopwoop 9y ago
My impression is that modern firms "pay dividends" by doing share buybacks, which are equivalent to dividends but taxed less (I'm nowhere near an expert here, if that isn't clear). If you don't have a voting share or some kind of contractual guarantee, though, what's to stop the voting shareholders from deciding to just buy only voting stock in the event of a buyback?
- mcguire 9y agoNote that the dividend effect is dependent on the share price, and may only be valid if you sell shares within a short time of the buy back.
- toast0 9y agoOutside of taxation, a buy back is essentially equivalent to a dividend that you're forced to reinvest. At the end of the day, all of your shares are worth a smidge more of the company. Certainly, the price could go down after a buyback, same as if you reinvested the dividend. The benefit for shareholders is that the shareholder can decide when to recognize that as a capital gain; the negative for shareholders is that they can't recognize only the portion of their capital gains related to the buy back.