Not an expert but I'll give it a shot: Company has extra money and wants stakeholders to get a cut. They can either give all the stakeholders some money based o

Not an expert but I'll give it a shot: Company has extra money and wants stakeholders to get a cut. They can either give all the stakeholders some money based on how much stock they have (this is called paying dividends), or they can buy back stock, raising the stock price (reducing the amount of stock means a given stock now corresponds to owning a larger stake in the company). Dividends would be taxed as income for investors. The increased stock value would only be taxed if/when it was sold for a profit (capital gains tax). Edit: dlp211 points out the income from dividends is (generally) taxed at the same rate as long term capital gains.