6 ms·

But so what if it creates a taxable event? Let's put aside what is good for you in the short-term, for a second. If a company does buybacks, and even borrows m

But so what if it creates a taxable event? Let's put aside what is good for you in the short-term, for a second. If a company does buybacks, and even borrows money for them, it might boost their stock in the short term, but it doesn't make their company better long-term, because they aren't investing that money into R&D, and it puts them in a possible cash crunch in the future (ie airlines today). As a thought experiment, what if instead of the company buying back stock, it's the US government. What if they decide to spent $500 billion buying 10% of every stock out there, instead of giving $1000 to every American citizen b/c of the virus. The first benefits people in the short-term, and doesn't create a taxable event. The second benefits people in the long-term, but might be a taxable event.

travisjungroth 7y ago
You're comparing buybacks to everything else. The person you were replying to was just answering why buybacks are now more popular than issuing dividends. The overwhelming reason is taxes.
- deleted 7y ago
  [deleted]
- jsight 7y ago
  I think his point is that buybacks should be no more relevant than dividends. This pop-culture meme that "dividends are irrelevant" is not unique to dividends at all.
colinmhayes 7y ago
Companies exist to create value for shareholders. That is done via dividends or buybacks. If companies do neither and aren't in a growth stage like amazon was investors would get pissed and there would probably be a hostile takeover. Shareholders prefer buybacks because of the tax advantage.
- throw0101a 7y ago
  > That is done via dividends or buybacks. Nope, dividends (and buybacks) are irrelevant: only total return matters: * https://www.pwlcapital.com/the-irrelevance-of-dividends-still-a-non-starter/ https://www.pwlcapital.com/the-irrelevance-of-dividends-stil...
  - colinmhayes 7y ago
    The amount the company pay shareholders, and what people believe the company will pay shareholders, is what defines a companies price. If the a company never pays dividends or does buybacks its value will plummet. It's idiotic to say well dividends and buybacks are irrelevant: only total return matters because future dividends and buybacks are the only factors that play into total return.
    - throw0101a 7y ago
      > If the a company never pays dividends or does buybacks its value will plummet. AAPL went public in December 1980. It paid dividends from 1987 to 1995. It then restarted in 2012. Steve Jobs returns to Apple in 1997. Somehow I see AAPL rising in value during its non-dividend paying years. AMZN when public in May 1997, and has never paid a dividend. AMZN has done some share buybacks in its history, but has not since 2012. Somehow I see AMZN rising in value. See also the history MSFT: somehow it has had a good total return despite not doing buybacks or dividends for most of its existence. There is no explanatory power in dividends or buybacks when it comes to stock returns: * https://en.wikipedia.org/wiki/Factor_investing https://en.wikipedia.org/wiki/Factor_investing * https://www.pwlcapital.com/the-irrelevance-of-dividends-still-a-non-starter/ https://www.pwlcapital.com/the-irrelevance-of-dividends-stil...
      - colinmhayes 7y ago
        The value of an asset is how much it will pay out. If a company never pays its shareholders deciding instead to burn profits it becomes worthless. Apple has value because people believe that at some point in the future apple will decide to give its hundreds of billions of dollars in cash back to investors. Amazon was in a growth phase which is why investors were/are ok with profits being reinvested. Shareholders would not allow that strategy to continue indefinitely. Eventually they've got to see a return.
throw0101a 7y ago
> If a company does buybacks, [...] because they aren't investing that money into R&D [...] False choice: a company can do R&D and do buybacks (or dividends). The capital return is for excess cash that has no internal use. AAPL spent US$ 4.2B (7.9% of revenues) on R&D and had a dividend. Sometimes there's a limit to how much you can do: companies have a finite number of employees after all, and there are only a finite number of projects that you may be able to handle at one time.

travisjungroth 7y ago

You're comparing buybacks to everything else. The person you were replying to was just answering why buybacks are now more popular than issuing dividends. The overwhelming reason is taxes.

deleted 7y ago
[deleted]
jsight 7y ago
I think his point is that buybacks should be no more relevant than dividends. This pop-culture meme that "dividends are irrelevant" is not unique to dividends at all.

colinmhayes 7y ago

Companies exist to create value for shareholders. That is done via dividends or buybacks. If companies do neither and aren't in a growth stage like amazon was investors would get pissed and there would probably be a hostile takeover. Shareholders prefer buybacks because of the tax advantage.

throw0101a 7y ago
> That is done via dividends or buybacks. Nope, dividends (and buybacks) are irrelevant: only total return matters: * https://www.pwlcapital.com/the-irrelevance-of-dividends-still-a-non-starter/ https://www.pwlcapital.com/the-irrelevance-of-dividends-stil...
- colinmhayes 7y ago
  The amount the company pay shareholders, and what people believe the company will pay shareholders, is what defines a companies price. If the a company never pays dividends or does buybacks its value will plummet. It's idiotic to say well dividends and buybacks are irrelevant: only total return matters because future dividends and buybacks are the only factors that play into total return.
  - throw0101a 7y ago
    > If the a company never pays dividends or does buybacks its value will plummet. AAPL went public in December 1980. It paid dividends from 1987 to 1995. It then restarted in 2012. Steve Jobs returns to Apple in 1997. Somehow I see AAPL rising in value during its non-dividend paying years. AMZN when public in May 1997, and has never paid a dividend. AMZN has done some share buybacks in its history, but has not since 2012. Somehow I see AMZN rising in value. See also the history MSFT: somehow it has had a good total return despite not doing buybacks or dividends for most of its existence. There is no explanatory power in dividends or buybacks when it comes to stock returns: * https://en.wikipedia.org/wiki/Factor_investing https://en.wikipedia.org/wiki/Factor_investing * https://www.pwlcapital.com/the-irrelevance-of-dividends-still-a-non-starter/ https://www.pwlcapital.com/the-irrelevance-of-dividends-stil...
    - colinmhayes 7y ago
      The value of an asset is how much it will pay out. If a company never pays its shareholders deciding instead to burn profits it becomes worthless. Apple has value because people believe that at some point in the future apple will decide to give its hundreds of billions of dollars in cash back to investors. Amazon was in a growth phase which is why investors were/are ok with profits being reinvested. Shareholders would not allow that strategy to continue indefinitely. Eventually they've got to see a return.

throw0101a 7y ago

> If a company does buybacks, [...] because they aren't investing that money into R&D [...] False choice: a company can do R&D and do buybacks (or dividends). The capital return is for excess cash that has no internal use. AAPL spent US$ 4.2B (7.9% of revenues) on R&D and had a dividend. Sometimes there's a limit to how much you can do: companies have a finite number of employees after all, and there are only a finite number of projects that you may be able to handle at one time.