But the buyback involves buying from sellers. Why don't the sellers of the shares owe tax? Don't see how that's a tax-dodge.
The fundamental purpose of a buyback is not to raise the stock price. The purpose of a buyback is to reduce the amount of outstanding shares, which makes every existing owner own an increased percentage. If a company buys back 10% of its stock, each long term shareholder now owns 10% more of the company. Over the long term, steady buybacks increase shareholder value this way, but the purpose of it isn't to slam the order book and juice the price. That's counterproductive, because you'll buy fewer shares at higher prices, and within a trading day, the market will push the price back to normal anyway.
They do, but it is only paid by the people who took the money (instead of being forced to do so), and, more importantly, only on the difference from what they paid.
If you pay out $1mln of dividends, then everyone collectively owes (let's say at a qualified rate of 20%) a total of $200k. If you buy 20,000 shares from one guy at $50/share, you returned the same $1mln of cash to shareholders, but if he bought last year for $45, he only owes (let's say at a long-term capital gains rate of 20%) a total of $20k in taxes.
Unless you're day trading, dividends are generally taxed at capital gains rates for most publicly traded companies in America (REITs and K-1 partnerships get worse tax treatment at the point of distribution). You don't even need to hold it for a year. Could be different in other nations.
You're comparing apples to oranges. At least in the US, both capital gains an dividends have lower tax rate carve outs if you own the stock for > 1 year.
They reduce sharecount. Not all buybacks increase share price. I can give you a thousand examples of massive buybacks that happened before the stock dropped considerably. But all reduce sharecount.
Searching on the subject of "buybacks where share price decresed", Google returns Merck as an example (reffing Harvard Business Review), which actually works quite well to illustrate. The HBR article even notes the main strategy "historically, companies that bought back their own shares have posted immediate returns between two and 12 percentage points above the market average"
"Merck's stock price dropped after a major buyback announcement when investors focused on expiring patents and a drying drug pipeline"
Except: Feb. 23, 2000, NYT, "Merck & Company, the No. 1 United States drugmaker, will buy back as much as $10 billion of its shares, which have fallen 18 percent this month." (Closest share price I can grab is 2/25/2000 at $57.39)
Share price then climbs steadily (tiny drop in July) up to a max at 12/29/2000 of $89.27 before finally crashing.
The first example Google returns is full of info on the stock behavior that makes it look like the stock buyback did not initially jack the price. Owners had 10 months to pull in a 55% share price increase before it crashed. And they floated through the 2000 March 10 bubble popping until the stock market really started deflating in 2001.
The fundamental purpose of a buyback is not to raise the stock price. The purpose of a buyback is to reduce the amount of outstanding shares, which makes every existing owner own an increased percentage. If a company buys back 10% of its stock, each long term shareholder now owns 10% more of the company. Over the long term, steady buybacks increase shareholder value this way, but the purpose of it isn't to slam the order book and juice the price. That's counterproductive, because you'll buy fewer shares at higher prices, and within a trading day, the market will push the price back to normal anyway.