Just to be perfectly precise, dividends are usually taxed as income, but an increased valuation as a result of a buyback would only be taxed as capital gains wh

Just to be perfectly precise, dividends are usually taxed as income, but an increased valuation as a result of a buyback would only be taxed as capital gains when the shares are sold. If there weren't a separate capital gains rate, then the only difference would be the tax would be collected when the shares were sold rather than when the dividend was issued. However, if you had the intention of reinvesting your dividend, then you would buy new stock with post-income-tax dollars, whereas a buyback would increase the value of your stock holdings without using your own post-tax money.