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I wish more big stocks (looking at you, tech giants) paid regular dividends instead of buybacks. It gives me a real, irrevocable return on my investment and be

• analognoise 8y ago
  You could only buy stock that produces dividends? (Edited because words)
• JKCalhoun 8y ago
  > I wish more big stocks (looking at you, tech giants) paid regular dividends instead of buybacks. Apple does both. Not sure where that puts it....
  • mmanfrin 8y ago
    That's because they have so much cash that they have no idea what to do with it otherwise. They are also doing buybacks.
  • seanmcdirmid 8y ago
    Microsoft does both also.
• dman 8y ago
  That would make sense if dividends were not double taxed. Dividends are paid from after tax dollars and then the investor has to pay taxes on dividends again.
  • tomerico 8y ago
    I wish the law allowed investors to reinvest the dividends and postpone the tax event. This would have improved the current skewed state.
    • mlevental 8y ago
      it does? you don't pay capital gains on reinvested dividends
      • gascan 8y ago
        Pretty sure DRIP is still taxed.
        • sk5t 8y ago
          It surely is, just the same as a dividend not-reinvested.
      • spacehome 8y ago
        It's not capital gains, because nothing is sold, but dividend income is taxed, whether or not it's re-invested. Form 1040, line 9.
        • Godel_unicode 8y ago
          Dividend income on "qualified dividends" is taxed at the capital gains rate.
          • loeg 8y ago
            Emphasis on "is taxed."
• lr4444lr 8y ago
  They will pay more, the following quarter or year, if profit sharing is unchanged and your shares constitute a bigger proportion after the prior buyback.
• wdewind 8y ago
  Why isn't the ability to short sell enough to balance this incentive out? If twitter is severely overvalued there's a ton of money to be made informing the market of that fact.
  • deleted 8y ago
    [deleted]
  • foota 8y ago
    You'd have to be able to predict when the market will have an adjustment to do that.
    • wdewind 8y ago
      Right, that's why the market is functioning well when it's rewarding you for bring that information to it earlier. That's what short selling does.
  • Godel_unicode 8y ago
    TSLA has been heavily shorted for a long time. People are shorting a stock on a relatively short term timescale (typically) while speculating in Tesla is frequently believed to be longer term (again, typically). Given that many long term investors believe in dollar-cost averaging and explicitly refuse to try to forecast if the price will rise or fall over the short run, both groups can be right at the same time and aren't directly opposed viewpoints.
    • wdewind 8y ago
      Sorry I don't really understand your point. Some people short sell on a "short" time line, but some people try and make large, long term plays via shorting. Ackman and Herbalife, being a canonical example.
      • daxorid 8y ago
        Exactly. Low margin rates and the fact that TSLA doesn't pay a dividend really help shorts maintain long-term positions, as well.
• melling 8y ago
  Maybe you should read with Warren Buffett says about it
• hackerdr 8y ago
  >I wish more big stocks (looking at you, tech giants) paid regular dividends instead of buybacks. It gives me a real, irrevocable return on my investment and benefits all shareholders equally (on a per share basis). That's exactly the reason that some companies don't pay dividends. It leads to irrevocable gain, which means it adds to your tax liability. Whereas, if a stock rose in value, there's no immediate tax implications for the investor. A lot of investors prefer that. In fact if the stock is donated instead of cash, there's never a tax implication.
• harryh 8y ago
  FWIW there is essentially no historical evidence that stocks that pay more dividends are more "rational." Stocks likes TLSA and TWTR have high multiples because they stand a decent chance of having a lot of growth in the future, they have a lot of volatility because that growth is uncertain. These are fundamental facts about their business that wouldn't go away if they squeezed out some sort of token dividend.
  • liveoneggs 8y ago
    assuming you mean tesla- they couldn't pay dividends because they have massively negative EPS. twitter, surprisingly, is actually showing a positive EPS (is that new?) although the P/E is > 100 so, again, a dividend would be pretty small. at least apple is paying out these days.
    • harryh 8y ago
      A positive EPS isn't a requirement for paying out a dividend though of course it's usually a pretty good idea.
      • liveoneggs 8y ago
        lol
• gnicholas 8y ago
  > It gives me a real, irrevocable return on my investment Why don't you just sell a bit of your holdings each year, and get this irrevocable return yourself? And if others don't want to sell and be taxed each year, they can just hold onto their shares (and continue to be subject to market risk).
  • rishabhparikh 8y ago
    You don't exchange any stock when you're paid dividend. If you sold a bit of your holdings each year you would eventually have no equity left.
    • deleted 8y ago
      [deleted]
    • nradov 8y ago
      Do you want to have your cake and eat it too? The difference is that if the company pays dividends then the stock price will drop because it represents a claim on a smaller amount of assets. So you can achieve exactly the same effect yourself by periodically selling a small percentage of your holdings. It's like having a big piece of a small cake versus a small piece of a big cake: if you get the same amount of cake in the end then who cares how it's shaped.
    • philwelch 8y ago
      If the dollar value of your holdings appreciates by 7% each year and you sell 4% of your holdings each year (by dollar value), you can keep selling indefinitely. (This is, incidentally, exactly how retirement accounts work.)
    • harryh 8y ago
      If you sell a fixed % of your holdings every year (that is equivalent to the % you would get paid in cash due to a dividend) you will never run out of equity.
• jakelarkin 8y ago
  most taxable investors strongly prefer buybacks. capital gains from the equity appreciation are taxed at no more than 20% vs whatever your income tax rate is which can be 25%-50%.
• tryptophan 8y ago
  Sigh. Buybacks and dividends are mathematically identical. Well...that's not true. Dividends get taxed harder than buybacks, which is why more and more [institutional] investors want companies to switch to buybacks over dividends. I feel like people have been conditioned to get an irrational hatred when they hear the word "buyback" as if it were some evil trick pulled by those evil banksters over in wallstreet. "buybacks are killing capitalism" blah blah. Its pure FUD that comes from finance being complex and the average person not being nearly informed enough about it to parse it correctly. Buybacks and dividends both are ways of returning capital to shareholders. Dividends do it directly, buybacks do it by raising the share price. Example: Company makes 100$ profit and is worth 1000$ @ 1$/unit. You own 100 units of stock. Lets say it pays out everything to shareholders every year, once a year, at the end. It can pay this as a dividend, so you would get 10$ at the end of the year, for a total of 110$. Or it can do buybacks, and buys 100$ worth of units, effectively removing them for existence, and lowering the total number of units to 900. The company still makes 100$ though, and to keep the same ratio of price to earnings, 10 (=1$*1000units/100$), the price of each unit needs to rise to 1.111$, making your shares worth 111$. As you can see, they are pretty much identical, both giving 10% returns, except dividends are taxed much harder so buybacks win. The buyback shares are worth 1$ more, because this is a simplified example and I don't account for compounding, and you would have to continuously collect dividends and reinvest them continuously to get the same result(111$), which more closely approximates what happens in reality. Dividends are just traditional, buybacks are just another way to do the same thing. Your "dividend" is the share price increasing over the course of the year.
  • mantasm 8y ago
    It's a little more complicated than that. Say a company is worth $1000, and has 100 shares outstanding, for a share price of $10. They can pay a dividend of $100, reducing their value to $900 (share price of $9) and paying out $1 per share to shareholders. In the end, the shareholders still have $10 of value per share, but some was forcibly liquidated! Alternatively, the company can do a stock buyback of 10% of their shares. They spend $100 destroying 10 shares. The company is now worth $900 and there are 90 shares outstanding - investors still have $10 worth of value, whether they sold their shares or not. In the end, no value is created in either scenario - capital is just returned to shareholders. This is still a simplification because: 1. Stock prices often rise on the announcement of new dividends/share repurchases for similar reasons. It's a positive signal to investors that either of these things will happen, and affects their valuation of the firm. 2. Investors like capital-efficient businesses, and either of these methods of returning capital can actually create value for investors.
• longtermsec 8y ago
  TL;DR dividends dont get a tax deduction, interest from debt for buybacks do, so buybacks are more attractive Given that interest rates were so low from 2009-2017, many companies actually issued debt not because they needed the money but in order to do stock buybacks. Some companies such as McDonalds have definitely overdipped as their revenues declined significantly, but other companies like Apple and Microsoft were smart to do it while maintaining growth. Apple had $0 long term debt in 2013. At the end of June 2018 they held $97B!!! The average debt interest for AAPL and MSFT is somewhere between 2-2.5% interest, and prior to the 2017 Jobs act the interest payments were 100% tax deductible. I think that's a key part of why companies did this, they viewed the debt as basically free money after inflation and the tax deduction. Unfortunately this is less tax revenue for the US government and its citizens, so in effect its us the taxpayers that are funding the debt for the buybacks. The NY Times opinion piece fails to mention this aspect. It would be amazing to hear from a CFO on the topic. Since the 2017 Jobs act companies are now restricted to 30% of their pretax income being deductible to interest. For fiscally responsible companies like AAPL, MSFT, they're nowhere near to 30%, so the intent of this change is largely moot. Now for a real financial hacker -- i'd like to ask about a wild idea, what happens 2 years out from now supposing that interest rates remain high. All companies looking to raise debt will have to raise at 4%+ interest, and CECL and the fed reserve rate increases will see banks requiring much larger deposits than toda. The bond holders for MCD, MSFT, AAPL, etc, could look to sell to increase their reserves and also get better returning assets. Will megacorps be able to buy back their own debt above fair market value, but above below their principle amount, in effect having earned money on the debt they issued?
  • kgwgk 8y ago
    Companies can also issue debt to pay dividends. The thing you are discussing is not about buybacks vs dividends (is about returning capital to shareholders by either of these mechanism vs not doing so). > Apple had $0 long term debt in 2013. At the end of June 2018 they held $97B!!! They also have much more than that in cash (and cash-equivalents). If you want to make a point about companies giving to shareholders money that they don’t really have Apple or Microsoft are not the best examples.