When companies choose to distribute profits to shareholders, they can do so in two ways: by doling out dividends, or by buying back their own stock, which increases investor earnings per share by decreasing the inventory on the open market. Each method of payout comes with its own shareholder benefits.
Beyond boosting EPS, share repurchases also limit an investor's downside -- no matter how far the stock falls, it always has a built-in pool of buyers. And from a tax perspective, buybacks have an advantage in that they're only taxed once. Fortunately, there's no need to choose between dividends and company buybacks -- you can have your cake and eat it, too. If you're on the hunt for a bargain, high yielding dividend companies buying back their own shares can make particularly attractive picks.
Source: Motley Fool
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