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A dividend is money you pay to your owners as profit: if a business makes more than it’s expenses, that profit is either reinvested, held onto, or given back to
by FakeComments 8y ago
A dividend is money you pay to your owners as profit: if a business makes more than it’s expenses, that profit is either reinvested, held onto, or given back to shareholders as a dividend.
Repurchasing stock is more or less accomplishing the same thing, but by purchasing shares back from the market instead of just giving the money to shareholders. This makes their shares more valuable — but has different tax implications.
Both are ways to return profits to shareholders, and are activities usually done by mature businesses and not growing ones. (The reason a business returns money is it doesn’t know how to successfully reinvest the money.)
- mschuster91 8y ago> The reason a business returns money is it doesn’t know how to successfully reinvest the money Most companies that do not return money through dividends or stock buy backs are eventually pressured to do so by activist investors / hedge funds, even Apple. The only company which has managed to resist this is Amazon which is famous for cross-financing to enter a market and then totally dominate it with the funds from profitable parts of the company (e.g. AWS). It only works because Amazon stockholders in general know that this is the secret sauce behind Amazon's entire business model.