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increase dividend: pay more to shareholders (as opposed to anything else the business could do e.g. CapEx or raises for labor) do stock repurchases: basically
by maximente 8y ago
increase dividend: pay more to shareholders (as opposed to anything else the business could do e.g. CapEx or raises for labor)
do stock repurchases: basically a way to launder money by evading taxes. the long and short is that instead of paying shareholders $100 via dividends, which are taxable dividend income, the co spends $100 to buy the shares (say 50 shares at $2 each). if the shares were purchased for $1 each, then the basis increases by $1, so the it only creates $50 taxable income.
edit: mistake
- dinedal 8y agoI don't fully understand the specifics, I thought that dividend tax was generally 15% in the lower tax bracket, and wouldn't the $50 of non-dividend income be taxable at short term capital gains, or 40%? That means that the $100 of dividend income would be $15 in taxes vs $20 of taxes for the $50 in short term capital gains. What am I missing?
- maximente 8y agoi'm assuming long term rate here: 15% income > $38K, 20% > $425K, which is the same as dividends; obviously, short term is way higher as you've noted. so they'd pay half the taxes in this case - you can plug in different numbers to see a different effect, e.g. $50 purchase => $60 buyback across $1mil dollars. i probably should have done this for clarity's sake.
- dinedal 8y agoThanks for the followup!