If a company does buybacks, and even borrows money for them, it might boost their stock in the short term, but it doesn't make their company better long-term, because they aren't investing that money into R&D, and it puts them in a possible cash crunch in the future (ie airlines today).
As a thought experiment, what if instead of the company buying back stock, it's the US government. What if they decide to spent $500 billion buying 10% of every stock out there, instead of giving $1000 to every American citizen b/c of the virus. The first benefits people in the short-term, and doesn't create a taxable event. The second benefits people in the long-term, but might be a taxable event.
Nope, dividends (and buybacks) are irrelevant: only total return matters:
* https://www.pwlcapital.com/the-irrelevance-of-dividends-stil...
AAPL went public in December 1980. It paid dividends from 1987 to 1995. It then restarted in 2012. Steve Jobs returns to Apple in 1997. Somehow I see AAPL rising in value during its non-dividend paying years.
AMZN when public in May 1997, and has never paid a dividend. AMZN has done some share buybacks in its history, but has not since 2012. Somehow I see AMZN rising in value.
See also the history MSFT: somehow it has had a good total return despite not doing buybacks or dividends for most of its existence.
There is no explanatory power in dividends or buybacks when it comes to stock returns:
* https://en.wikipedia.org/wiki/Factor_investing
* https://www.pwlcapital.com/the-irrelevance-of-dividends-stil...
No, the value of an asset is how much you will get for it.
Steve McQueen's 1968 Mustang Fastback from the movie Bullitt has neither dividends nor buybacks, but it was auctioned in January 2020 for US$ 3.4M.
* https://en.wikipedia.org/wiki/Bullitt
Paul Newman's personal "Paul Newman" Rolex Daytona sold for US$ 17.75M:
* https://www.hodinkee.com/articles/paul-newman-rolex-daytona-...
> Eventually they've got to see a return.
They can see a return at any point: sell your shares for more than you bought them for. Boom: capital returns.
Dividends do not matter:
* https://canadiancouchpotato.com/2011/01/18/debunking-dividen...
A dollar in your pocket is a dollar in your pocket regardless of whether it came from dividends or sell your shares:
* https://www.moneysense.ca/magazine-archive/the-income-illusi...
You are performing what is called "mental accounting":
* https://ritholtz.com/1982/11/explaining-investor-preference-...
* https://www.etf.com/sections/index-investor-corner/21413-swe...
"the value of an asset is how much you will get for it."
and the price of an asset is an estimate of its value. projection of future dividend/buybacks is an important part of determining that value. the idea that its irrelevant to pricing is ludicrous.
False choice: a company can do R&D and do buybacks (or dividends).
The capital return is for excess cash that has no internal use. AAPL spent US$ 4.2B (7.9% of revenues) on R&D and had a dividend.
Sometimes there's a limit to how much you can do: companies have a finite number of employees after all, and there are only a finite number of projects that you may be able to handle at one time.
It's just buybacks are considered 'better' because the event is the choice of the seller, and occurs when it is for them. A dividend is 'thrust' upon a shareholder whether they want it or not. (And not investing in dividend-paying companies can be a non-starter: the company in question may be quality one that is worth owning (regardless of dividends, or buybacks)).
The problem is not buybacks or dividends: it is (a) possible executive chicanery, and (b) a lot of the general public not having the means / spare cash to get their foot in the door in investing.
As another replier pointed out: dividends create a tax event if the shares are held in a taxable account (in US: not IRA, not 401(k)).
Sometimes people (pensions, trusts) don't want those types of events and would rather choose when to invoke tax events by selling only when they need to for income purposes.