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Technology Stocks : Dell Technologies Inc.

DELL 120.45

-0.1%

Jan 12 3:59 PM EST

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To: Geoff Nunn who wrote (61331)	8/27/1998 11:59:00 AM
From: Chuzzlewit	Read Replies (2) of 176387

Geoff, you are correct in pointing out the fact that neither the buyback nor the dividend creates value directly. In fact, this value readjustment behavior is well known when stocks trade ex-dividend. But I think a point can be made that the tax consequences of these transactions makes the repurchasing company somewhat more valuable than its dividend paying counterpart. The point I was trying to make is that a share repurchase is really equivalent to a dividend with a reinvestment, but the tax consequences are entirely different. As you correctly observed, in the example I used the price of the shares should have dropped to $49.90 in in the case of the dividend and remain at $50 in the case of the buy-back. But in the case of the dividend it would be fully taxable as ordinary income. Thus, I would expect that the dividend-paying stock to be a little less valuable to the investor than the stock repurchasing company. The result, in a fully discounting market, would be a nominal increase in the value of the repurchasing company relative to the dividend paying company. TTFN, CTC

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