Why Buyback?Buybacks are clearly a more tax-efficient way to return capital to shareholders because the investor doesn’t incur any additional tax on the buyback sale process. Tax is only applicable on the actual sale of shares, whereas dividends attract tax in the range of 15% to 20%. In some countries, dividend payments also attract a Dividend Distribution Tax (DDT), which means for every $1.00 paid to shareholders, the company must pay $1.20 or $1.30 depending on the DDT rate. This process favors the concept of buybacks more than cash dividends.Advantages of BuybacksIt prevents a decline in the value of a stock by reducing the supply of the stockWith the reduction in outstanding shares, the Earnings Per Share (EPS) of the company improves. This is a good indication of the company’s profitability and may boost its share price in the long run.The example below shows the impact on EPS if a company buys back 20% of its shares, i.e., reduction of shares from 100,000 to 80,000:
NEU Price at posting:
$12.96 Sentiment: Buy Disclosure: Held
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