Dividends vs. Buybacks

Companies return cash to shareholders in two main ways: dividends and buybacks. Each has different effects on taxes, flexibility and what it signals. Here is how they compare and how real companies mix the two.

Two ways to return cash

A dividend puts cash directly into every shareholder’s account. A buyback returns cash only to the shareholders who sell, while the ones who hold end up owning a bigger share of the company. In theory, both return the same value. In practice, they differ in important ways.

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