A dividend lets the investors choose if they want to buy more shares (from the same sellers who would sell in a buyback) or mix their current shares with the cash.
Investors buying more shares with dividends doesn't decrease the number of shares outstanding. If you increase the share price without decreasing the share count, you have created value out of thin air and are saying the company was more valuable without the cash than it was with it.
The key is the asymmetry of information. The market price should reflect all public information. However the company has non-public information, which puts them in the best position to judge if money is best invested inside the company or out. Share buybacks are a legal form of insider-trading.
Number of shares doesn't matter, enterprise value does and it doesn't change. Your implying that there would be a further equity issuance which doesn't routinely happen on buybacks.
> Investors buying more shares with dividends doesn't decrease the number of shares outstanding. If you increase the share price without decreasing the share count, you have created value out of thin air and are saying the company was more valuable without the cash than it was with it.
You're wrong. When the company issues the dividend, the share price falls for precisely the amount issued. So if everybody used that money to buy the shares again, the share price should return (roughly) to the value before the dividend was paid. The number of shares outstanding wouldn't change.
JDDunn9|10 years ago
The key is the asymmetry of information. The market price should reflect all public information. However the company has non-public information, which puts them in the best position to judge if money is best invested inside the company or out. Share buybacks are a legal form of insider-trading.
phyalow|10 years ago
tomp|10 years ago
You're wrong. When the company issues the dividend, the share price falls for precisely the amount issued. So if everybody used that money to buy the shares again, the share price should return (roughly) to the value before the dividend was paid. The number of shares outstanding wouldn't change.