FIN 69 - Mod 13 Intro - Dividends vs Buybac

Welcome to our 13th module, lucky number 13. In this module, we talk about the strategy of a company paying dividends versus doing stock buybacks. So a company has excess money, excess cash. What do they do with it? They want to get the money to shareholders. They want to show shareholders a return. They could pay a dividend. They could buy back their own shares. Those are both ways of enriching shareholders. What should they do? What we find is dividends versus buybacks. It really makes no difference. Asterisk let's read the small print. It makes no difference in theory, because again, we are sending capital back to our investors and it should not change the firm's value, the company's value, and so it shouldn't make a difference to shareholders, which method we use and we'll, we'll crunch the numbers and we'll say, oh, this is why we're kind of equal off, no matter what we do, you know, we'll show you the math behind why it doesn't make a difference to pay a dividend or do a stock buyback, but if you've followed the news or followed your favorite companies, many, many more companies are doing stock buybacks these days than dividends, and the reason is there are advantages. So in practice, it does make a huge difference for two reasons. One, tax implications. There are, uh, significant tax considerations and it's going to depend country by country. So I can't break it down for everybody in every country, but generally speaking, there are tax advantages for the investor in a buyback situation versus a dividend situation. And the second big difference is timing. In the event of a dividend, you don't call the shots as the investor. The company pays a dividend. They paid it in this tax year. It's going to be taxable in this tax year. If the company does a stock buyback, well, you don't have to sell your stock back to them. So there's not, you get the time when you have a taxable event with a dividend, you don't get to call the shots as an investor, the company paying the dividend gets to call the shots. So again, in theory, dividends versus buybacks doesn't really make a difference. And we'll, we'll crunch the numbers from a company perspective, why it doesn't make a difference, but it actually does make a huge difference, particularly to the investors. And there's a reason why buybacks have been in vogue and our, our, uh, investors view them pretty favorably. So we'll discuss those as well in this, our 13th module, stay tuned for all the number crunching related to this. Bye for now.