As a beginner in the stock market, it is important to know market fundamentals to identify the best investment opportunities. However, it is also important to go beyond the basics, like what is trading and what is Demat account, and understand the various ways you can earn returns in the equity market. Equity stocks typically provide returns in two major ways: stock buybacks and dividends.
Comparing buyback vs. dividend, while dividend payouts are a reliable source of income, stock buybacks include significant capital gains for the stockholders who choose to give up their shares. A key impact of buybacks is that the cumulative stocks of the company decrease significantly in the market and the EPS (earnings per share) increases. Thus, as the amount of shares falls, their intrinsic value increases. Usually, the market also perceives buybacks favourably.
In this article, we will primarily focus on the buyback vs. dividend debate, understand what dividends and buybacks are with examples, learn the key areas of distinction, and explain how smart investors should pick an option that works best for them.
