Comments on: Why Fred Wilson Doesn’t Like Stock Buybacks

By: Isegoria

Isegoria — Sun, 27 Jun 2010 19:09:54 +0000

Absolutely, a dividend, which the shareholder can use to buy more shares, is theoretically no different from a share buyback, in which the shareholder can hold onto or sell back shares. In practice, a dividend forces a taxable even on investors who want to compound their wealth. I disagree that the entire point of a company is to give shareholders cash. The point of investing is to trade some cash now for the expectation of more cash later. Only a fraction of investors — widows and orphans — are looking to slowly divest and receive a steady stream of cash. Many young investors are doing the opposite — slowly investing and "dollar-cost averaging" with a fraction of their income. And some investors are making big moves in or out. Dividends are not obviously the single best way to handle excess cash.

By: Devin Finbarr

Devin Finbarr — Sat, 26 Jun 2010 03:11:13 +0000

If a buyer receives a dividend, they still have the choice of using that cash to buy new shares. “Indiscriminately giving shareholders cash” is funny way to phrase things. The entire point of a company is to give shareholders cash. All companies go through a life cycle — growth, maturity, decline. The problem with stock buy backs is that the shareholder who holds for the long term may never see a return on his investment, he will go through all three stages without ever getting any cash back. For that reason, I never buy the stock of mature companies that do not pay dividends. There’s no way you can win. And if you run the numbers on historical returns, the empirical evidence matches logic, mature companies that do not pay dividends give less of a return.