Companies used to (and some still) transfer profits to shareholders by paying periodic dividends. The stock buyback transfers profits to shareholders by raising the stock price. It became popular because capital gains are taxed at a lower flat rate than dividends.
Also, dividends are taxed when they are paid, but gains are taxed when the stock gets sold. Wealthy shareholders can sit on unrealised capital gains for years or decades, pay no taxes, and still access the wealth by putting the shares up as collateral for personal loans.
Stock buybacks are certainly popular with big and wealthy investors.
I understand the difference between dividends and stock buybacks. Just pointing out that it seems almost counter-intuitive on some level (a company buying its own stock).
Companies used to (and some still) transfer profits to shareholders by paying periodic dividends. The stock buyback transfers profits to shareholders by raising the stock price. It became popular because capital gains are taxed at a lower flat rate than dividends.
Also, dividends are taxed when they are paid, but gains are taxed when the stock gets sold. Wealthy shareholders can sit on unrealised capital gains for years or decades, pay no taxes, and still access the wealth by putting the shares up as collateral for personal loans.
Stock buybacks are certainly popular with big and wealthy investors.
I understand the difference between dividends and stock buybacks. Just pointing out that it seems almost counter-intuitive on some level (a company buying its own stock).