4 ms·

Nope. Stock buy backs are a tax efficient way of giving dividends. The stock rises in price instead of issuing the dividend. So for me the owner of the stock I

Nope. Stock buy backs are a tax efficient way of giving dividends. The stock rises in price instead of issuing the dividend. So for me the owner of the stock I don’t have a tax event for holding. The whole reason to own stocks, is to realize profit from ownership.

blankley 9y ago
The author does address this. "Some people used to argue that buybacks were a more tax-efficient means of distributing money to shareholders than dividends. But that has not been the case since 2003, when the tax rates on long-term capital gains and qualified dividends were made the same."
- Scoundreller 9y ago
  Not all shareholders are USians. As a Canadian, US dividends get taxed like full-income. Capital gains get taxed just like Canadian capital gains: at one-half the income tax rate. In one of our tax-free savings vehicles: the tax-free savings account, capital gains would be tax free, but dividends are still stuck with IRS withholding taxes of 15-30% of dividends.
- 1123581321 9y ago
  That addresses the objection but doesn't fully satisfy it. First, not all shareholders are taxed the same way, as the other commenter noted. Second, the tax rate of long-term gains might change before the stock is sold; a fraction of shareholders in the US probably believe that will happen. Third, the dividend tax is collected immediately (on the next tax return), so it reduces how much the shareholder can reinvest unless they take money from elsewhere. Buybacks compound in the stock more easily than dividends.
Scoundreller 9y ago
And it lets you time the crystallization of your gains. With dividends, your tax bill each year is at the mercy of the board of directors. With only capital gains... a stock practically functions like a retirement fund: you can defer taxes until low-tax years.

4 ms·

Nope. Stock buy backs are a tax efficient way of giving dividends. The stock rises in price instead of issuing the dividend. So for me the owner of the stock I

by kanwisher 9y ago

blankley 9y ago
The author does address this. "Some people used to argue that buybacks were a more tax-efficient means of distributing money to shareholders than dividends. But that has not been the case since 2003, when the tax rates on long-term capital gains and qualified dividends were made the same."
- Scoundreller 9y ago
  Not all shareholders are USians. As a Canadian, US dividends get taxed like full-income. Capital gains get taxed just like Canadian capital gains: at one-half the income tax rate. In one of our tax-free savings vehicles: the tax-free savings account, capital gains would be tax free, but dividends are still stuck with IRS withholding taxes of 15-30% of dividends.
- 1123581321 9y ago
  That addresses the objection but doesn't fully satisfy it. First, not all shareholders are taxed the same way, as the other commenter noted. Second, the tax rate of long-term gains might change before the stock is sold; a fraction of shareholders in the US probably believe that will happen. Third, the dividend tax is collected immediately (on the next tax return), so it reduces how much the shareholder can reinvest unless they take money from elsewhere. Buybacks compound in the stock more easily than dividends.
Scoundreller 9y ago
And it lets you time the crystallization of your gains. With dividends, your tax bill each year is at the mercy of the board of directors. With only capital gains... a stock practically functions like a retirement fund: you can defer taxes until low-tax years.