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tock Repurchasing Vs. Paying DividendsCOLLAPSE
What are the advantages of stock repurchasing versus paying dividends?
When a company buys some of its own outstanding stock, this is known as stock repurchasing. There are three situations that lend to stock repurchasing, a company decides to increase its leverage by issuing debt and using the proceeds to repurchase stock, a firm has given their employees stock options, and a company may have excess cash. Advantages of stock repurchasing can be the capability to build wealth over time for investors because of the beneficial impact on earning per share, being able to defer taxes until the shares are sold where dividends have an annual tax payment, and greater flexibility to complete a state repurchase program in a specified time frame if financially incapable. Advantages of dividends payments is they are highly visible; information is easily found on websites and corporate investor websites. Both can significantly boost shareholder returns.
Brigham, E. & Ehrhardt, M. (2017). Corporate Finance: A Focused Approach (6ed). Cengage Learning. Boston, MA.