Why would a retirement fund want a buyback? They would prefer a healthier company in ten years rather than a lump sum they need to pay someone to reinvest.
1) Because buybacks and dividends are what produce the entire value of stock at the end of the day. 2) Buybacks don't need to be reinvested, they already are by definition. 3) Rebalancing your portfolio due to buybacks is done automatically by your fund that you already pay a small maintenance fee for.
There's nothing unhealthy about buybacks, that's a total misconception that needs to die. They're just treated differently from unqualified dividends for tax purposes.
1)The value of the stock is based on the value of the company, a better performing company produces more value than a buyback. 2) I'll admit I'm not too knowledgeable about every kind of buyback, but surely some involve buying back stocks. For some kinds, you're probably right. 3) I would be surprised if many funds existed where there weren't transaction fees or a percentage based fee, giving them reasons to prefer buybacks even if it doesn't help the actual owner.
>They're just treated differently from unqualified dividends for tax purposes
At the end of the day it's not much of a tax loophole. The same total amount of money ends up getting taxed, it's just that shareholders can decide whether they want to opt-in to realizing their capital gains. Some choose to sell back fewer shares (frequently none) and some choose to sell back more shares (especially stock-receiving employees, who may feel a need to diversify). Hardly something to get upset about.
A retirement fund may not want the tax event of a dividend.
A retirement fund needs $x/month: things may work out such that they receive too much cash from dividends in any given month/quarter. So they're receiving, and being taxed on, cash that is not needed.
With buybacks a retirement fund can determine how much money they need and can cash out only what is required, and only take the tax hit on that.
