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I don't see how stock buybacks are meaningfully different from dividends. If anyone cares to explain without any gaping logical holes in their explanation, it w

I don't see how stock buybacks are meaningfully different from dividends. If anyone cares to explain without any gaping logical holes in their explanation, it would be nice. In buyback the money comes to shareholder in the form of increased stock price (and the investor can choose if he wants to get the value by selling). In the case of dividends, all investors must buy more of the stock. That should be just technical difference, not a substantial issue. For example, if buybacks are forbidden because CEO pay is a problem, obviously the compensations will change to reflect the change. In the end total compensation will stay the same. As a investor look at the total return of stocks (price + dividends reinvested) and it has little effect on my decisions if buybacks change into dividends.

xapata 8y ago
Regularity. Dividends are typically given on a frequent, predictable schedule. Buybacks are not.
- tathougies 8y ago
  Dividends are not always frequent and predictable. There is certainly no requirement that they be. A board can decide to pay a dividend (or not pay one) or to reduce the dividend at any time, unless the corporations bylaws somehow protect it (although they can typically change these as well).
  - xapata 8y ago
    Yes, but would you agree that dividends are typically frequent and predictable? I think that's a fair statement in comparison to stock buybacks.
    - tylerhou 8y ago
      Sure. But that's not a fundamental difference, that's just a difference in normal usage. The only fundamental difference between stocks and dividends from an investor perspective that I'm aware of is tax treatment.
- tylerhou 8y ago
  Why can't buybacks be scheduled on a frequent, predictable schedule? IANAL, but I don't see anything preventing a company from disclosing that they will buy back $foo amount of stock every quarter.
  - xapata 8y ago
    Right. It's just habit.
  - mercutio2 8y ago
    To avoid stock manipulation, there are strict limits on how much of its own stock a company can purchase in a given trading day. So in practice, legally, companies have a ceiling on how much they can technically purchase in a given quarter. But most companies aren’t in the lucky position of wanting to do buybacks larger than their normal daily stock flow.
kgwgk 8y ago
Buybacks create artificial demand for the stock, pushing prices higher (and giving the company a tool to support the stock when the price declines). Lower share count also means higher price in the long term, relative to the alternative scenario of paying dividends. This is relevant for employees with stock-linked compensation. The dividend alternative may require higher cash compensation for employees and create retention issues (not that stock compensation is free, mind you). And of course lower share count means higher earnings per share, making it easier for management to attain targets and beat forecasts. One aspect that can hurt long-term investors is that the company will overpay for its shares when the stock is overvalued.
bitxbit 8y ago
There is a significant difference between repo and divi. Repo takes away from existing float where as dividend is returned PER SHARE. The difference could be more or less "technical" in a flat market but it's significantly more advantageous to do repo in a bull market. And it's not like investors fully reinvest divi especially in current ETF/index environment. This is all from an investment perspective and it isn't necessarily a bad thing since the companies pursuing repo strategies are basically doing what their shareholders prefer to do with excess cash. HOWEVER, I believe there's more to it than just shareholder returns. I posit current wave of repo has contributed to increasing market concentrations across the board and that will ultimately lead to negative monopolistic behaviors.
- kgwgk 8y ago
  How do buybacks result in market concentration? If the alternative is dividends, it doesn’t change anything. Using the money to grow the business would increase concentration (in particular if the growth is through acquisitions).

xapata 8y ago

Regularity. Dividends are typically given on a frequent, predictable schedule. Buybacks are not.

tathougies 8y ago
Dividends are not always frequent and predictable. There is certainly no requirement that they be. A board can decide to pay a dividend (or not pay one) or to reduce the dividend at any time, unless the corporations bylaws somehow protect it (although they can typically change these as well).
- xapata 8y ago
  Yes, but would you agree that dividends are typically frequent and predictable? I think that's a fair statement in comparison to stock buybacks.
  - tylerhou 8y ago
    Sure. But that's not a fundamental difference, that's just a difference in normal usage. The only fundamental difference between stocks and dividends from an investor perspective that I'm aware of is tax treatment.
tylerhou 8y ago
Why can't buybacks be scheduled on a frequent, predictable schedule? IANAL, but I don't see anything preventing a company from disclosing that they will buy back $foo amount of stock every quarter.
- xapata 8y ago
  Right. It's just habit.
- mercutio2 8y ago
  To avoid stock manipulation, there are strict limits on how much of its own stock a company can purchase in a given trading day. So in practice, legally, companies have a ceiling on how much they can technically purchase in a given quarter. But most companies aren’t in the lucky position of wanting to do buybacks larger than their normal daily stock flow.

kgwgk 8y ago

Buybacks create artificial demand for the stock, pushing prices higher (and giving the company a tool to support the stock when the price declines). Lower share count also means higher price in the long term, relative to the alternative scenario of paying dividends. This is relevant for employees with stock-linked compensation. The dividend alternative may require higher cash compensation for employees and create retention issues (not that stock compensation is free, mind you). And of course lower share count means higher earnings per share, making it easier for management to attain targets and beat forecasts. One aspect that can hurt long-term investors is that the company will overpay for its shares when the stock is overvalued.

bitxbit 8y ago

There is a significant difference between repo and divi. Repo takes away from existing float where as dividend is returned PER SHARE. The difference could be more or less "technical" in a flat market but it's significantly more advantageous to do repo in a bull market. And it's not like investors fully reinvest divi especially in current ETF/index environment. This is all from an investment perspective and it isn't necessarily a bad thing since the companies pursuing repo strategies are basically doing what their shareholders prefer to do with excess cash. HOWEVER, I believe there's more to it than just shareholder returns. I posit current wave of repo has contributed to increasing market concentrations across the board and that will ultimately lead to negative monopolistic behaviors.

kgwgk 8y ago
How do buybacks result in market concentration? If the alternative is dividends, it doesn’t change anything. Using the money to grow the business would increase concentration (in particular if the growth is through acquisitions).