Reference no: EM132350209

What are the advantages of stock repurchases versus paying dividends?

Some of the advantages of stock repurchases involve the fact that it reduces the number of shares outstanding for a company and improves return on equity for the firm. When this happens, the share price will increase over time which ultimately increases capital gains for shareholders. Paying dividends can be very costly to a new company start-up since the firm is usually experiencing some form of loss in its early years, so it is usually best to buyback shares from the marketplace only when really needed. Personally, I think a company should only buyback when absolutely necessary otherwise it may appear to investors that the company is failing. Also, it should be carefully considered when deciding to buyback because these shares will most likely be funded by cash flow from operations or by debt.