In the dividends vs. stock buybacks debate I see a lot of people talking about how buybacks are better for share holders, “puts more money in their pockets”, etc. This has me thinking about investing in equities in general and I'm left with the following:
- Stock buybacks are better because they reduce the number of slices in the pie, therefore making the remaining slices larger.
- Dividends payout a portion of the pie for you to do as you please with. This reduces the pie's size proportionally and therefore lowers the valuation.
- Being told you are entitled to a larger slice due to a small pool of slices is not the same as actually being handed a slice a pie.
The goal of every company is to at some point payout a dividend, right? There's no company out there that genuinely thinks “nope, we're going to be all-in on infinite growth on this finite planet until we are the single supplier of every good and service in the entire economy.” Because even if that was the goal, people would still buy the stock because they want a slice of the everythingopoly's future earnings.
And isn't that the point of the game? To buy a security which entitles you to a portion of a given companies future earnings via a dividend? I understand stock appreciation and making your money that way, but I'm referring specifically to long-term investing as opposed to trading. The only situation I can think of to buy a security that is not to get a portion of it's future earnings is buying a company with Price/tangible Book < 1.0 because you'll make your money + return in bankruptcy court, assuming they have no debt.
Or maybe I'm entirely wrong about everything and should just DCA into $VOO for the next 40 something years.
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