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That's essentially what a stock buyback does. The two options to return earnings to the owners are to issue a dividend, which is taxed at a higher rate or to bu
by stilky 8y ago
That's essentially what a stock buyback does. The two options to return earnings to the owners are to issue a dividend, which is taxed at a higher rate or to buy back stock which drives up the value of outstanding shares thus returning value to the shareholders
- tboyd47 8y agoI've read this explanation (two equivalent choices, one is taxed higher than the other) so many times, but I can't believe there's no downside to stock buybacks. Something about it just feels very wasteful, like picking the fruits of a tree just to grind them into compost for the soil under the same tree.
- longerthoughts 8y ago>like picking the fruits of a tree just to grind them into compost for the soil under the same tree The difference being that your example would at least enrich the soil and potentially improve future yields (like R&D), while buybacks are essentially just propping up the stock price with no fundamental contribution to future success.
- kd5bjo 8y agoBuybacks only return money to shareholders who choose to sell. Instead of distributing the company’s profits proportionally to its owners, it becomes a game of chicken as each investor has to decide when they should get out.