When investors think of the two main ways they can achieve a return on their investment in the stock market, the classic buying low and selling high are at the top of the list, closely followed by dividend payouts. However, there is a third—much more efficient and beneficial—way that management can reward their shareholders.
The efficiency aspect beats dividend payouts for one simple reason. Dividends are paid through a company’s free cash flow (operating cash flow minus capital expenditures), meaning they are issued with capital that has already been taxed. Then, investors will also have to pay a tax on the payments they receive, making this double taxation not desired.
