Scope And Purpose Of This Post
- Many arguments in favor of dividends are fatally flawed.
- Many arguments made in favor of dividends are actually arguments in favor of dividends and share buybacks.
- For individual investors, with their tax-normal investments, share buybacks are superior to dividends due to how they're taxed differently.
- For corporate investors, dividends can be superior to share buybacks due to taxation differences.
- For tax-advantaged accounts (401k, IRA), "share buyback vs dividend" doesn't matter.
- The more a company is undervalued, the better share buybacks are, and the more a company is overvalued, the worse share buyback are, but it is foolish to think you know better than the market about the proper value of company.
- Even if a company is undervalued, a share buyback may be inappropriate if there are good investment/growth opportunities available to the company.