Capital Returns
Dividends & Buybacks
Two ways companies say "Thank You" with cold hard cash.
1. Dividends: The Payout
Dividends are profit sharing. But timing is everything.
Declaration Date
The day they announce: "We pay $0.50 on May 1st."
Ex-Dividend Date
The cutoff. You must own the stock before this date to get paid.
Not Guaranteed
Dividends are voluntary.
- They can be cut if profits fall.
- They can be suspended entirely strictly to save cash.
- But the best companies (Dividend Aristocrats) raise them every year.
2. Stock Buybacks
Instead of giving you cash, the company buys its own shares from the market and destroys them. It's "Reverse Dilution".
Shrinking the Pool
Remember the pizza? Dilution cut the pizza into more slices, making yours smaller.
Buybacks remove slices from the box. Since there are fewer total shares, your existing shares instantly own a larger percentage of the company.
1
Company buys shares from open market.
2
Shares are retired (deleted).
3
Remaining shares become more valuable.