Are stock buybacks really better?

Enrique Diaz-Alvarez enrique at
Wed Apr 5 13:25:22 PDT 2000

Rakesh Bhandari wrote:

> >
> Investors don't want highly taxed pay outs, they want dividends to be used
> for share retirement, if not investment, right? All this means explosive
> capital appreciation of outstanding shares, no?

On second thought, I am not realy sure that the difference in taxation between dividends and cap gains makes stock buybacks more desirable for shareholders. The only reason stock buybacks make shares more valuable is by making future dividens per share higher than they otherwise would have been. But these higher future dividends will *still* be taxed at the higher rate, so why should it make a difference as to which method of returning cash to shareholders is more desirable, unless investors expect tax rates to come down in the future?

-- Enrique Diaz-Alvarez Office # (607) 255 5034 Electrical Engineering Home # (607) 272 4808 112 Phillips Hall Fax # (607) 255 4565 Cornell University mailto:enrique at Ithaca, NY 14853

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