Is it better for a public company to increase its dividends, or institute a share buyback?
"In some sense, the share repurchasing program is better if the company does not foresee the same profit levels down the road.  Paying a dividend for several years and then suddenly not paying or reducing a dividend is viewed as a ""slap in the face"" by investors.  Executing a share repurchase program one year and then not the next is not viewed as negatively. From an investor's standpoint, I would say a dividend is preferred over a share repurchase program for a similar reason.  Typically companies that pay a dividend have been doing so for quite some time and even increasing it over time as the company increases profits.  So, it can be assumed that if a company starts paying a dividend, it will do so for the long-run." I feel dividends are better for shareholders. The idea behind buy backs is that future profits are split between fewer shares, thereby increasing the value (not necessarily price -- that's a market function) of the remaining shares. This presupposes that the company then retires the shares it repurchases. But quite often buybacks simply offset dilution from stock option compensation programs. In my opinion, some stock option compensation is acceptable, but overuse of this becomes a form of wealth transfer -- from the shareholder to management. The opposite of shareholder friendly! But let's assume the shares are being retired. That's good, but at what cost? The company must use cashflow (cash) to pay for the shares. The buyback is only a positive for shareholders if the shares are undervalued. Managers can be very astute in their own sphere: running their business. Estimating a reasonable range of intrinsic value for their shares is a difficult, and very subjective task, requiring many assumptions about future revenue and margins. A few managers, like Warren Buffett, are very competent capital allocators. But most managers aren't that good in this area. And being so close to the company, they're often overly optimistic. So they end up overpaying. If a company's shares are worth, say, $30, it's not unreasonable to assume they may trade all around that number, maybe as low as $15, and as high as $50. This is overly simplistic, but assuming the value doesn't change -- that the company is in steady-state mode, then the $30 point, the intrinsic value estimate, will act as a magnet for the market price. Eventually it regresses toward the value point. Well, if management doesn't understand this, they could easily pay $50 for the repurchased stock (heck, companies routinely just continue buying stock, with no apparent regard for the price they're paying). This is one of the quickest ways to vaporize shareholder capital (overpaying for dubious acquisitions is another). Dividends, on the other hand, require no estimates. They can't mask other activities, other agendas. They don't transfer wealth from shareholders to management. US companies traditionally pay quarterly, and they try very hard not to cut the dividend. Many companies grow the dividend steadily, at a rate several times that of inflation. The dividend is an actual cash expenditure. There's no GAAP reporting constructs to get in the way of what's really going on. The company must be fiscally conservative and responsible, or risk not having the cash when they need to pay it out. The shareholder gets the cash, and can then reinvest as he/she sees fit with available opportunities at the time, including buying more shares of the company, if undervalued. But if overvalued, the money can be invested in a better, safer opportunity. I would prefer a dividend paying company, rather than share appreciation. And I would prefer that the dividends increase over time.
Typically, preferred shares come with one or both different benefits - a disproportionate share of votes, say 10 votes per share vs the normal 1, or a preferred dividend.  The vote preference is great for the owner(s) looking to go public, but not lose control of the company. Say, I am a Walton (of Walmart fame) and when I went public, I sold 80% of the (1000 share total) company. But, in creating the share structure, 20% of shares were assigned 10 votes each. 800 shares now trade with 800 votes, 200 shares have 10 votes each or 2000 votes. So, there are still the 1000 shares but 2800 votes. The 20% of shares now have 2000/2800 or 71% of the total votes. So, my shares are just less than half ownership, but over 78% of votes.  Preferred dividend is as simple as that, buy Stock A for ownership, or (same company) Stock A preferred shares which have ownership and $1/yr dividend.  Edited to show a bit more math. I use a simple example to call out a total 1000 shares. The percentages would be the same for a million or billion shares if 20% were a 10 vote preferred. Wow I love some of these answers. Remember why you are investing in the first place.  For me I like Dividend stocks and Dividend Capturing. Here is why. With over 3500 dividend stock companies paying out dividends this year, that means I can get a dividend check almost every day. What about if the stock goes down you ask? Well out of these 3500 companies there is a small group of these stocks that have consistently increased their dividend payout to their investors for over 25 years and a smaller group that have been increasing every year their pay outs for over 50 years. Yes Kennedy was in office back then and to this day they consistently pay higher and higher dividend payments to their investors, every year... for 50 years.  As for the Dividend Capturing strategy, that allows me to collect up 10-20 checks per month with that little effort. As for the stock going down... Here is a little tidbit that most buyers overlook. Stock price is more or less the public's perception of the value of a certain company. Earnings, balance sheet, cash flow, market cap and a few other things in the quarterly report will give you a better answer to the value of a company. If stock price goes down while earning and market go keep going up... what does that tell you? Not directly Nintendo, but: A company would want its share price to be high if it wants to sell its stock, e.g. on IPO or on subsequent offerings. However, if they want to buy back some shares, it would be in their interest to get more stock for the buck. There may of course be derivative values associated with a high share price, e.g. if they bet on the price or have agreements with investors for particular milestones to be reached. Employees might hold shares and be motivated by share price increases, so a decrease may not be desired, unless they are into some kind of insider trading (buy low, sell high). And last, over-valued share prices may undermine trust in a company, and failing to inform shareholders sufficiently may be outright illegal. Besides those reasons related to law, funding, sales, public relations and company image, companies should be pretty much independent from their own share prices, in contrast to share distribution. There have been many interesting and correct answers but to give a direct answer to your first question, dividend yield is simply dividend over current share price. So, if the share price drops, your dividend yield increases proportionately. Dividend yield is not something one should use as the only source of information of whether a stock is a good/bad buy. It does not show many important factors: the riskiness of the company business, its financial position, profitability, ability to generate cash. Furthermore, dividend yield is just a snapshot of an income gain at a given point in time. It does not mean that this very dividend policy is going to continue in the future (especially not so if the company finances this dividend payments using not its own cash reserves but outside capital by issuing debt securities, which is unsustainable). Not sure how this has got this far with no obvious discussion about the huge tax advantages of share buy backs vs dividend paying.  Companies face a very simple choice with excess capital - pay to shareholders in the form of a taxable dividend, invest in future growth where they expect to make more than $1 for every $1 invested, or buy back the equivalent amount of stock on the market, thus concentrating the value of each share the equivalent amount with no tax issues. Of these, dividends are often by far the worst choice. Virtually all sane shareholders would just rather the company put the capital to work or concentrate the value of their shares by taking many off the market rather than paying a taxable dividend. Shares in a company represent a portion of a company. If that company takes in money and doesn't pay it out as a dividend (e.g. Apple), the company is still more valuable because it has cold hard cash as an asset. Theoretically, it's all the same whether your share of the money is inside the company or outside the company; the only immediate difference is tax treatment.  Of course, for large bank accounts that means that an investment in the company is a mix of investment in the bank account and investment in the business-value of the company, which may stymie investors who aren't particularly interested in buying larve amounts of bank accounts (known for low returns) and would prefer to receive their share of the cash to invest elsewhere (or in the business portion of the company.) Companies like Apple have in fact taken criticism for this. Your company could also use that cash to invest in itself (growing the value of its profits) or buy other companies that are worth money, essentially doing the job for you. Of course, they can do the job well or they can do it poorly... A company could also be acquired by a larger company, or taken private, in exchange for cash or the stock of another company. This is another way that the company's value could be returned to its shareholders. You might be right about that, but your previous posts don't say that.  In just the last one you said:  &gt;Because buyback decreases shares outstanding it **also decreases the company's total future dividend payouts as well**  This is indicating that you believe there is a difference somehow, no? Technically, the difference between dividends and growth ought to be that dividends can be reinvested in stocks other than the one that paid them, which is a definite advantage if you actually have a strategy.  Dividend -paying stocks used to be preferred for exactly that reason, back in the days when fewer people were directly playing in the market and more knew what they were doing. Unfortunately,  getting a periodic dividend from a stock whose price is relatively steady isn't as exciting a game as watching your stock's value bounce around and (hopefully)  creep upward on a second-by-second basis. Those who are thinking in gambling terms rather than investment terms -- or who think they can beat the pros at high frequency trading, comment withheld -- want the latter, and have been putting a lot of pressure on companies to operate in the latter mode. That doesn't make it better -- certainly not for the longer-term investors -- just more fashionable. And fashion often means getting stuck with something impractical because everyone else is doing it. On this, I second Scrooge:  Humbug!