On: SEC charges Nvidia with inadequate disclosures abo...

[rileymat2]

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.

[JamesBarney → rileymat2]

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.

[rileymat2 → JamesBarney]

> After the company spends the windfall it's only worth a million afterwards. This is true.

But look at a simple example, your example. Company Worth $1,000,000. 1,000 shares, each worth $1,000.

Windfall Event: They get $1,000,000 of unexpected income. Now the company was whatever it was before + $1,000,000.

Naturally, that means the company is worth $2,000,000. So the stock price is $2,000.

Well, we buy back half the shares, but it is 500 shares at $2,000 a share. This costs $1,000,000.

Now each share is worth $1,000 because the company has spent half its capital.

[JamesBarney → rileymat2]

So pre windfall market cap is 1 mil.

Say windfall is 1 mil.

Post windfall market cap is 2 mil. (1 mil for company + 1 mil in cash)

Company buys 500 shares at 2,000. So the company is now worth 1 mil again but there are 500 shares. 1 mil / 500 shares is 2k per share.

[rileymat2 → JamesBarney]

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.