Lets go this trough: Before: I own 100 stocks worth $100 each. =$10000. Option 1: 2% dividend. I have 100 stocks worth $98 each + $200 =$10000. Stock value d

Lets go this trough: Before: I own 100 stocks worth $100 each. =$10000. Option 1: 2% dividend. I have 100 stocks worth $98 each + $200 =$10000. Stock value drops immediately. Option 2: equal sized buyback: I have 100 stocks worth of $100 each = $1000. Buyback does not increase the stock value immediately. Company pays $200 for those who sell, but owns the stocks (or shareholders 'own them') so it's net neutral. This reduces the number of shares outstanding, thereby inflating (positive) future earnings per share. This typically leads to the value increasing.