> I am curious if there is evidence for this. I don’t see how distributing capital that could be used for growth pressures share prices up.
Say I have a company worth a $1,000,000 dollars that has a 1,000 shares each worth $1,000. Company comes into a giant one off windfall. They use that windfall to buyback half the shares. There are now there are only 500 shares that own a $1,000,000 dollar company so each share is worth $2,000. Or put another way .2% of future profits is worth more than .1% of future profits.
> I always presumed that the main benefit of buybacks v dividends was being able to time capital gains for tax purposes.
It's not about timing, it's simpler. Buybacks are taxed as capital gains, and dividends as income.
This is not true, qualified dividends are taxed at the capital gains rate. Most are qualified.
Also, with the windfall the $1,000,000 company is no longer worth that much, it is worth $1,000,000 + the windfall, so you will be buying back at a much higher rate.
After the company spends the windfall it's only worth a million afterwards.
But you're right about qualified dividends. I had no idea qualified dividends were taxed at the same rate as capital gains. I'd always hear that was why companies do stock buybacks.
Thanks for teaching me something new. You're right it's about allowing investors to time their taxable events.
Yes my last sentence was wrong, however as you can see it was 2k a share before the buyback but after the windfall and ended at 2k a share. The buyback did nothing, it was the windfall that moved the price.
Say I have a company worth a $1,000,000 dollars that has a 1,000 shares each worth $1,000. Company comes into a giant one off windfall. They use that windfall to buyback half the shares. There are now there are only 500 shares that own a $1,000,000 dollar company so each share is worth $2,000. Or put another way .2% of future profits is worth more than .1% of future profits.
> I always presumed that the main benefit of buybacks v dividends was being able to time capital gains for tax purposes.
It's not about timing, it's simpler. Buybacks are taxed as capital gains, and dividends as income.