csearle wrote:If it was a given that the share price would be "propped up" by the share buyback then maybe that would indeed be better. But it isn't, at least not in any predictable way. The share price appears to me to move with little reference to the share buybacks. So for me (I admit that my holdings are tax sheltered so that dividends for tax purposes are not a negative thing) a dividend is the income I'm looking for; a share buyback is simply lost income. C.
Other things being equal, a share buy back should have precisely no effect on the share price.
If a company pays a dividend, the share price should fall by the value of the dividend on the xd date. That happens because the value of the company falls by the value of the dividends paid out. The investor, however, receives the dividend. Other things being equal, the new lower value of the company plus the value of the dividends paid out is the same as the value of the company before the share went xd. No money is created or destroyed by paying out a dividend.
If the company instead buys back shares to the value of the dividend, the money again disappears from the company's balance sheet, and the company is worth less: exactly what it would have been if it had paid out a dividend. There are now, however, less shares in issue. Again, no money has been created and destroyed. The value of an investor's shareholding is worth exactly what it was before the buy back. He is neither richer nor poorer, but the money has disappeared from the company balance sheet, as it would do if a dividend had been paid.
If a company cannot invest money to generate at least the same return as the market, it should return money to shareholders. That does not always happen, however. I would much rather have buy backs than dividends, because I do not have to pay tax on them.