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Pastimes : Ask Mohan about the Market
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To: Richard Nehrboss who wrote (15530)4/23/1998 8:41:00 AM
From: Zeev Hed  Read Replies (2) of 18056
 
Richard, the theory is that a buy back of stock is a tax free dividend, and thus its impact on total return to shareholder is much larger than its face value. So if a company has a dividend yield of let say 1.5% and it buys back in a given year 2% of its stock, the total yield is 4.5% (1.5 plus 3 since the company would have had to pay the equivalent of three percent for the holders to keep 2% at a tax rate of 33%, since most tax rates are closer to 40% the yield is even better).

Zeev
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