No, its the diffence between a bonus and a salary. A stock buyback is like giving employees [shareholders] a bonus. Some employees get bonuses every year based

No, its the diffence between a bonus and a salary. A stock buyback is like giving employees [shareholders] a bonus. Some employees get bonuses every year based on how the company is doing. Employees are OK with getting a lower bonus next year. Employees get very, very unhappy when their salary gets decreased in a bad year. Investors are the same way. They punish a stock when a company decreases its dividend. If you aren't sure you can make a promise in perpetuity, don't increase your dividend, instead give shareholders a bonus, aka stock buyback. Then, if next year you need the cash to invest in the company, instead of another buyback, you do that. Investors stay happy because you didn't decrease your dividend. Some companies, like Target (which has never decreased its dividend ever) might have a hard time competing with Amazon because Amazon can make almost no profits on paper (until recent years) while funneling all their revenue back into the company. Target does not have this luxury. They DEFINITELY cannot say to investors "okay we're cutting our dividend for 2 years to compete with amazon by funneling it into growth." They'd get crushed. tl;dr, buybacks are wiser than dividends for any company that might want to spend the money on growth in following years, instead of doling it out to shareholders, as is done with dividends. Another reply already explained the tax implication reason.