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Is it? Or is it a sign that the company is confident in itself? What is the difference between a stock buy back and a dividend? Both increase shareholder value

Is it? Or is it a sign that the company is confident in itself? What is the difference between a stock buy back and a dividend? Both increase shareholder value by returning cash to investors. If not share buy backs, they would just issue a special dividend to accomplish essentially the same thing just without reducing the outstanding share count. If companies have the ability to issue new shares, why shouldn't they have the ability to reduce the shares with a buy back? What is the negative consequence? Further, if a company is flush with cash but the stock price is too low, is there any reason they shouldn't be allowed to buy it back to tell the market that they're wrong?

mlfreeman 3y ago
> What is the difference between a stock buy back and a dividend? A dividend payout is cash in your hand, a share buyback is theoretical gains that may be gone by the time you sell.
dpflan 3y ago
Confidence? Increase the stock price simply buy taking excess money and reducing share supply, that doesn't seem like confidence, but it is a short term price gain -- whether it is long-term price gain would be to-be-determined. Re-issuing shares because there buybacks intentionally change the price, seems like the financial engineering aspect of huge corporations, not really anything related to R&D creating new revenue streams. I don't know, I'm not convinced yet, buybacks just seems like a fast way to increase price/"returns on investment in the stock" and market cap and appease investors with large holdings. Surely, yes, you could take loans out against the new market cap or issue debt, but why not just have used the existing cash to do that already. The only explanation could be that investors can cash out and different taxes have affect (or not!) and innovation is less of a need than continuing to exist and buy back stocks.
- brightball 3y ago
  Or it could be that the stock market unrealistically expects stock prices to constantly increase in perpetuity and if this doesn't happen, the stocks are penalized by wall street market manipulation, shorts and investors with short term expectations?
  - dpflan 3y ago
    It is the game of the market and financial deregulation and maximizing profit (company, and at minimum personal). Yes there are strategies to develop related to these financial levers, but it's quite cynical for a corporation to strategically dodge taxes of their own, then also create a buyback program that strategically dodges taxes of say dividends. In an ideal world, the taxes could be put to good use, and one could argue that even just have appropriate taxes may allow good use because there is taxed money to work with --- this can be lost at city, county, state, and federal levels. The company definitely pays the right people to continue to exist the way it does, so a select few truly benefit massively financially; while, others less so.
    - brightball 3y ago
      The company does buy backs and dividends with the excess cash that it has, after paying taxes on all of the income, property taxes on their facilities, sales taxes on equipment, employment taxes for all of their staff and then the income taxes related to all of their staff. We have a spending problem in this country, not a lack of tax money.
      - dpflan 3y ago
        True, "spending problem" is what an ideal scenario would not have -- a spending problem could also be not having enough to spend. But again, let's look at tax rates over-time, corporate tax rates in the US versus corporate profits, buybacks, etc over-time in the past 100 years. What would we see? I'm definitely curious where all this money is going...
transcriptase 3y ago
In essence the government is miffed that they don’t get to tax unrealized gains via share price appreciation like they would dividends.
matwood 3y ago
> they would just issue a special dividend to accomplish essentially the same thing just without reducing the outstanding share count Yeah. People seem to think if a company didn't do a buyback they would spend the money on salaries or R&D. No, the company would issue a dividend instead. One consequence of a dividend is they typically trigger a taxable event vs. a buyback which gives the investor more options to control their tax burden. Personally, I prefer buybacks over dividends in stocks I own for this reason.
hnfong 3y ago
For non-US investors who resides in a jurisdiction that does not have tax treaty with US, dividends are taxed at 30% rate, while capital gains (expected outcome of buyback) are not (taxed by US govt). The recent movement against stock buybacks in the US makes US stocks much less attractive to foreign investors like me. Aside from the tax thing, I don’t see what’s the practical difference between buybacks and dividend either (besides potentially a difference in opinion of the company’s view on the stock price) , but apparently some people are outraged at one but not the other.

mlfreeman 3y ago

> What is the difference between a stock buy back and a dividend? A dividend payout is cash in your hand, a share buyback is theoretical gains that may be gone by the time you sell.

dpflan 3y ago

Confidence? Increase the stock price simply buy taking excess money and reducing share supply, that doesn't seem like confidence, but it is a short term price gain -- whether it is long-term price gain would be to-be-determined. Re-issuing shares because there buybacks intentionally change the price, seems like the financial engineering aspect of huge corporations, not really anything related to R&D creating new revenue streams. I don't know, I'm not convinced yet, buybacks just seems like a fast way to increase price/"returns on investment in the stock" and market cap and appease investors with large holdings. Surely, yes, you could take loans out against the new market cap or issue debt, but why not just have used the existing cash to do that already. The only explanation could be that investors can cash out and different taxes have affect (or not!) and innovation is less of a need than continuing to exist and buy back stocks.

brightball 3y ago
Or it could be that the stock market unrealistically expects stock prices to constantly increase in perpetuity and if this doesn't happen, the stocks are penalized by wall street market manipulation, shorts and investors with short term expectations?
- dpflan 3y ago
  It is the game of the market and financial deregulation and maximizing profit (company, and at minimum personal). Yes there are strategies to develop related to these financial levers, but it's quite cynical for a corporation to strategically dodge taxes of their own, then also create a buyback program that strategically dodges taxes of say dividends. In an ideal world, the taxes could be put to good use, and one could argue that even just have appropriate taxes may allow good use because there is taxed money to work with --- this can be lost at city, county, state, and federal levels. The company definitely pays the right people to continue to exist the way it does, so a select few truly benefit massively financially; while, others less so.
  - brightball 3y ago
    The company does buy backs and dividends with the excess cash that it has, after paying taxes on all of the income, property taxes on their facilities, sales taxes on equipment, employment taxes for all of their staff and then the income taxes related to all of their staff. We have a spending problem in this country, not a lack of tax money.
    - dpflan 3y ago
      True, "spending problem" is what an ideal scenario would not have -- a spending problem could also be not having enough to spend. But again, let's look at tax rates over-time, corporate tax rates in the US versus corporate profits, buybacks, etc over-time in the past 100 years. What would we see? I'm definitely curious where all this money is going...

transcriptase 3y ago

In essence the government is miffed that they don’t get to tax unrealized gains via share price appreciation like they would dividends.

matwood 3y ago

> they would just issue a special dividend to accomplish essentially the same thing just without reducing the outstanding share count Yeah. People seem to think if a company didn't do a buyback they would spend the money on salaries or R&D. No, the company would issue a dividend instead. One consequence of a dividend is they typically trigger a taxable event vs. a buyback which gives the investor more options to control their tax burden. Personally, I prefer buybacks over dividends in stocks I own for this reason.

hnfong 3y ago

For non-US investors who resides in a jurisdiction that does not have tax treaty with US, dividends are taxed at 30% rate, while capital gains (expected outcome of buyback) are not (taxed by US govt). The recent movement against stock buybacks in the US makes US stocks much less attractive to foreign investors like me. Aside from the tax thing, I don’t see what’s the practical difference between buybacks and dividend either (besides potentially a difference in opinion of the company’s view on the stock price) , but apparently some people are outraged at one but not the other.