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The big advantage to shareholders of stock buy-backs is a lower tax rate. Capital gains get taxed at a lower rate than do dividends. It's true that you have to sell stock to enjoy the benefit... I guess there's a brokerage commission as an extra tax, versus just depositing a dividend check. But the tax advantage outweighs that very quickly.
it's true though that stock buy-backs do profit holders of options disproportionately. If the buy-backs just balance the extra shares generated by the holders of the options... maybe that is better for shareholders than just paying big bonuses to the execs. At least it motivates the execs to keep the price up. It does have the downside though of being a temptation to manipulate the price.
The main point is really to understand how the overall level of executive compensation is set. Does the typical board of directors do a good job of oversight and of representing the interest of the shareholders?
JimK, Bullcorn, anytime somebody mentions tax advantages before return on investment I keep my money.
The plain fact is I know my own needs and desires and can get them with money. And since stock prices are at least occasionaly based on real returns, high dividends and special dividends make the price go up, but it benefits stockholders as much as options holders.
Of course the talking heads on the financial news programs favor buybacks-they're hired and paid by the primary beneficiaries of the stock watering called options. As I said above, this should be illegal.
Currently in the U.S. both Capital Gains and Dividends are taxed at 15% unless the dreaded AMT gets her hands in your knickers. Who knows what will happen after these investor friendly rules sunset in the U.S. in 2010.
As for me I say give me the dividends I hate stock buybacks they are only good for the management at the top of the food chain. Studies show high dividend payers are the most disciplined users of capital and provide the greatest returns to investor. Besides I can reinvest the cash flow as I see fit either in more of their stock or other.