Buybacks vs. Dividends

Wednesday, August 8th, 2007 | Investment Philosophy with 7 Comments

The results are in!  Last week’s poll at Value Investing News asked, “As a shareholder, which would you rather have? Buybacks, dividends, or other.” Twenty-nine of you voted and here are the results:

Stock buybacks versus dividends poll

It looks like buybacks are slightly preferred to dividends among readers of Value Investing News. The results show that 45% of the poll participants prefer buybacks, 41% prefer dividends, and 14% prefer “other”. These “other” respondents were instructed to explain their answer in the comments section.  Here’s what they had to say:

“If you ignore taxes it really doesn’t matter. Buybacks should be made at attractive prices and not used to pay for employee stock options (dilution).” – Nick

“If the company is great buybacks are the best second to reinvesting in the company. Then dividends. For a par subpar company with low ROIC dividends are best because the company can’t do much better with the cash itself. I’m inbetween though overall. I’m skeptical of most managers so in that case, dividends.” – Mr. Wallstreet

I expected that the results of this poll would have been more conclusive. However, as you can see from the comments above, there are good reasons to prefer buybacks in some cases and dividends in other cases.

I’m struggling to come up with a new poll for this week at Value Investing News.  If you have any suggestions, please leave a comment below.

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Comments

  • This question is impossible to answer without some information about the company. It is ridiculous to assume one is somehow “better” than the other.

    If a company believes it shares are trading at a significant discount to intrinsic value then buying back shares would be more appropriate.

    If a company believes it’s shares are trading at a premium to intrinsic value AND they cannot find a way to deploy this excess capital for above market returns they should return the earnings to their owners as dividends.

    Drew August 8th, 2007 at 11:55 am
  • Possibly, I better question would be:
    When evaluating the future prospects of a company, what is more important to review:
    The trend in dividend increases over time or
    The trend in buybacks over time

    David August 8th, 2007 at 9:18 pm
  • I would be curious to know if your readers expect large cap (maybe measured by the S&P 500 or Dow) or small cap (Russell 2,000 or S&P 600) will outperform in the second half. We’re seeing a flight to quality which has the Dow outperforming, but that may not hold up into the end of the year.

    Thanks for the hard work and good insight.
    Zach

    Zach August 11th, 2007 at 10:34 pm
  • Zack, I just posted a similar question to the one you suggested regarding the relative performance of large cap versus small cap stock. You can find the poll about large cap vs. small cap vs. international stocks at Value Investing News right now.

    George August 23rd, 2007 at 6:07 pm
  • The poll results are cannot be considered as valid. With one extra vote to buyback, how can it be said that buyback was 45% while dividends only 41%? my conclusion would be, due to lack of data set it is an just observation, and no conclusions can be drawn.

    Dividend Tree February 18th, 2009 at 3:17 pm

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