Quote from: blumangroup on August 01, 2014, 02:04:50 AM

Quote from: RobertDJ on July 27, 2014, 04:48:22 PM

Quote from: theonewhowaskazu on July 27, 2014, 02:05:32 AM

Quote from: galbros on July 27, 2014, 01:56:32 AM

Buybacks tend to help current top management when it receives compensation from stock options. By "returning" capital via buybacks the stock price increases, when doing so via dividends, the price declines.

Until the Bush administration dividends were taxed at ordinary rates while capital gains were taxed at a lower rate, so there was some reason to do buybacks. However, as you note, almost always investors would prefer cash in hand via a dividend.

I generally view buybacks as fairly self serving.

Preferred stock is basically just an unsecured loan.

The reason to do buybacks is as I noted the potential to defer taxes . . .
And as I noted after a buyback, one can simulate a dividend by selling a proportional amount of stock...

Also theoretically (only in theory, in practice it doesn't work out this way) buybacks shouldn't raise the price because the company is spending a proportional amount of value, reducing the equity of the company proportionally to the number of shares it bought back. Unless people sold proportionally, to simulate a dividend, in which case the price would go down.

Same thing for dividends, if people reinvested dividends.

Although point taken about the options.

And preferred stock is different from unsecured lending for a variety of reasons, the primary of which is that it isn't unsecured.

You need to remember the NPV of cash today, even if taxed, is still worth more then the NPV of cash years from today, still taxed. An investors income from a stock is going to be taxed regardless, it is just a matter of when, but in both scenarios the profits will be taxed when the investment is turned into cash.

This is a very good point. Dividends will generate cash for shareholders "today" while share buybacks will generate "cash" "tomorrow" in the form of higher share prices over time and higher earnings per share over time. Additionally companies tend to purchase their own shares via share buybacks when their shares are expensive and issue new shares when share prices are cheap, thus destroying value for shareholders.

Actually its a terrible point for reasons I just finished explaining.

Say you hold $11 in stocks today.
Or you hold $10 in stocks + $1 in dividends.

The NPV of BOTH THESE ITEMS is the same, even though the $1 in stocks is in stocks not cash. Why? Because if the NPV of that $1 worth of stock wasn't $1, then it wouldn't trade for $1. Yes, the NpV of $1 today is worth more than $1 tomorrow, but the NPV of $1 today and $1 in stocks today IS the same (primarily because you could just liquidate the stock if you really wanted to.