Re:Microsoft Shares Soar to Record on Earnings Boost From Cloud
by WalterBright on Friday October 21, 2016 @03:19PM
(#12763698)
> Dividend and buybacks are essentially interchangeable as far as the shareholders are concerned.
But they are taxed differently, which is a huge deal for long term investors. Long term gains are taxed at lower rates and compound pre-tax, while dividends incur annual taxes at ordinary income tax rates.
Re:Microsoft Shares Soar to Record on Earnings Boost From Cloud
by kgwgk on Friday October 21, 2016 @03:24PM
(#12763758)
Correct. This is another reason why buybacks are popular. On the other hand, some people might prefer to get steady income by default without having to liquidate periodically parts of their portfolio. And long term investors might not be happy when a company spends money buying back its shares at high valuations (of course they could sell if they think the shares are overvalued, but we are talking about long term investors).
Re:Microsoft Shares Soar to Record on Earnings Boost From Cloud
by TuringNYC on Saturday October 22, 2016 @05:15AM
(#12767957)
There are other reasons than steady income that investors sometimes prefer dividends:
0. dividends force companies to be regimented about consistently creating income and not just sway with the overall market.
1. the shares are held in tax-deferred/tax-free accounts, so they taxable events don't matter to them. they prefer the tangible (dividend) to intangible (share increase from buyback)
Dividends and buybacks are essentially interchangeable as far as the shareholders are concerned. Simplifying a bit (ignoring taxes, transaction costs, discount on cash on the balance sheet, etc.), if you own 10% of a company valued at $100mn (i.e. you have $10mn in shares) and the company has $10mn in cash that it wants to return to shareholders it can either distribute dividends (so you get $1mn in cash and your shares are now worth 10% of $90mn) or it can buy back 10% of the outstanding shares. You could sell all your shares (you get $10mn in cash), keep all your shares (now they are worth 11.11% of $90mn, i.e. $10mn) or sell part of your holdings (and hopefully you'll believe me if I tell you that the stocks you keep plus the cash you get will make $10mn in total).