Subject: RE: back to topic (was Re: a stocks and dividends question)
From: "Larry M. Augustin" <lma@lmaugustin.com>
Date: Fri, 10 Jan 2003 06:28:04 -0800

> Stephen J. Turnbull writes
> 
> >>>>> "Zimran" == Zimran Ahmed <zahmed@gsb.uchicago.edu> writes:
> 
>     Zimran> A corporation can also return retained earnings to
>     Zimran> shareholders through share buybacks. Share appreciation
>     Zimran> through buybacks gets taxed at the lower, capital gains
>     Zimran> level (~20%) instead of the higher income tax level
>     Zimran> (~40%).
> 
> For the purpose at hand, this is a dividend by another name.  It
> happens to fool the IRS, but aside from tax advantages, it's the same.

No, it's much riskier.  Dividends are guaranteed to return money to
shareholders.  Share buybacks are not.  While buybacks often result in
increased share price, they are not guaranteed to do so.  Just because a
company is buying its own stock does not guaranteed that the share price
will increase.   In fact, it generally has not in the last four years.  If
the money spent on share buyback programs by companies in the past four
years had instead been distributed to shareholders as dividends,
shareholders would have been better off.  See, for example, stock buyback
programs by IBM and Dell.

Larry