Warren Buffett on DIVIDENDS vs. SHARE REPURCHASES (2004)

Companies generate profits and can distribute them to shareholders as dividends for income, or deployed to repurchase shares in the open market. Buffett shares his thoughts on which he prefers.

A dividend is a distribution of profits by a corporation to its shareholders. When a corporation earns a profit or surplus, it is able to pay a proportion of the profit as a dividend to shareholders. Any amount not distributed is taken to be re-invested in the business (called retained earnings). The current year profit, as well as the retained earnings of previous years, are available for distribution; a corporation is usually prohibited from paying a dividend out of its capital. Distribution to shareholders may be in cash (usually a deposit into a bank account) or, if the corporation has a dividend reinvestment plan, the amount can be paid by the issue of further shares or by share repurchase. In some cases, the distribution may be of assets. The dividend received by a shareholder is income of the shareholder and may be subject to income tax. The tax treatment of this income varies considerably between jurisdictions. The corporation does not receive a tax deduction for the dividends it pays.

Share repurchase (or share buyback or stock buyback) is the re-acquisition by a company of its own shares. It represents a more flexible way (relative to dividends) of returning money to shareholders. In most countries, a corporation can repurchase its own stock by distributing cash to existing shareholders in exchange for a fraction of the company's outstanding equity; that is, cash is exchanged for a reduction in the number of shares outstanding. The company either retires the repurchased shares or keeps them as treasury stock, available for re-issuance.
Buffett Books:
Intelligent Investor: https://amzn.to/3cY7rTP
Warren Buffett: 43 Lessons for Business & Life: https://amzn.to/3lMvjOf
The Essays of Warren Buffett: Lessons for Corporate America: https://amzn.to/3ccnIFy
The Snowball: Warren Buffett and the Business of Life: https://amzn.to/3vROoTM
The Warren Buffett Way: https://amzn.to/2NITWii
Buffett: The Making of an American Capitalist: https://amzn.to/31b3FkM
Security Analysis: 6th Edition, Foreword by Warren Buffett: https://amzn.to/3cbcbq7
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