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Only it isn’t the same. Dividends are taxable, capital gains are only taxable upon closing a position.
by quickthrowman 6y ago
Only it isn’t the same. Dividends are taxable, capital gains are only taxable upon closing a position.
- umeshunni 6y agoOk, so it's even better than a dividend. That would explain why it's used.
- mywittyname 6y agoYes. The reason I say theoretically is because, from a business perspective, they aren't different. Whether you buy your own stock or distribute a dividend shouldn't matter from a market cap perspective. It's still cash the company used to have, but no longer does and the market cap will reflect both equally. Now some investors prefer buybacks for tax reasons, others may not. It depends entirely upon how they invest. If you're a buy-and-hold, then it's favorable due to lack of taxes, but if you rebalance a lot (which most mutual funds do), then it doesn't matter.