Comments by "seneca983" (@seneca983) on "Stock Buybacks - The Good And The Bad Explained" video.

@poisonpotato1 But conversely with dividends your ownership share of the company doesn't increase unless you reinvest the dividends you received by buying more shares of the same company. Theoretically for an individual investor, reinvesting the dividends into the same company is equivalent to a share buyback if the investor doesn't sell his shares. Also theoretically, receiving dividends and not reinvesting them is equivalent to a share buyback if the investor sells a portion of his shares that's equal as a percentage to the portion of the shares of the company that were bought back. So in both cases, the investor theoretically has the same option of getting cash or not getting cash (though in practice some investors are not active and will not consider those options). When things like taxes and trading costs are considered dividends and share buybacks may no longer be equivalent even for a more active investor who weighs the available options.
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@jcsjcs2 "A dividend is money in hand." Generally, one should expect dividends to cause the stock's price to fall by an amount roughly equal in size to the dividend. If that weren't the case there would be an arbitrage opportunity where you could buy stock right before the dividend ex date and sell it right after (or the opposite if the fall were bigger). If you really need cash in your hand you always have the option of selling. "And when I sell my shares at the higher price, I pay taxes as well." But if you're going to be holding on to the stock for a long time then it's better for you if the taxation gets delayed.
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Luís Andrade "dividends give you more flexibility" In theory, both options have the same flexibility for publicly traded stocks because an investor can always choose to buy/sell as much as he wants. "buy backs only happen when a company wants while dividends are the ones who happen regularly" Both dividends and buybacks have to be decided at the general meeting. Dividends are only regular if it's decided so. They don't happen any more automatically than buybacks. "A company consistently buying back its shares is a huge red flag" Why is it a huge red flag?
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Luís Andrade "That's why dividends> buybacks" That doesn't make any sense. Debt-funded dividends should (in theory at least) be just as good or bad as debt-funded buybacks.
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@ProfAzimov That may make more sense if there is a sufficiently profitable investment available but that's not always the case. Generally, it doesn't make sense for a business to invest ad infinitum. There are diminishing returns to investment and at some point the returns get too small.
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@inigomontoya4109 "if it's just being used to pay investors it's a waste of interest rate" I disagree. If the interest rate is low enough, it's not waste. As a comparison, suppose the company earned some money and then would have the option of paying dividends or keeping the money in a bank account earning the same (low) interest rate as that hypothetical debt. Would keeping the money in a bank account make sense? Paying the dividends would just as much be "waste of interest rate" as taking a loan (as we're assuming the interest rate would be the same). I say it doesn't make sense. If the interest rate is low enough then it makes more sense to pay dividends as the paltry rate of return is not worth it for the investors.
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