As their access improved, they needed dividends less, because they could simply pick up the phone and sell shares if they needed cash. Or perhaps it was because the 1950s were the dawn of the age of financial economics. And one of the first lessons was that there was nothing special about dividends as a component of total equity returns. Twenty-five years later, in the 1980s, another nail was driven into the coffin of dividends. That's when people started to learn that paying dividends was not the most efficient way to return money to shareholders - buying back stock in the open market was smarter for companies.
Repurchases enable investors to decide when and how much to cash in.
And investors get to decide whether or not to bear a taxable event - and if they do, to pay the favorable capital gains tax rate, not the higher ordinary rate they would have paid on dividend income. And investors who don't sell their shares back to the company benefit from reduced earnings dilution. The spread between repurchases and dividends has gotten wider every year since 1997. But while this perhaps blunts Mr. Jubak's point about overvaluation, it tends to confirm his broader point that payouts to stock investors are important. Indeed, the mystique of dividend yields is far from dead.