Editor’s note: This article is from Tencent Technology.January 14 news, according to foreign media reports, if there are tens of billions of dollars in free cash flow can be invested or distributed to shareholders as dividends, most companies may be excited.Apple is one of the tech giants with this kind of “distress”.In fiscal 2019, Apple paid a dividend of $ 14.1 billion and spent $ 67.1 billion to buy back shares.It is expected that Apple may continue to spend money to buy back shares or pay dividends.So why does Apple prefer to buy back shares rather than pay dividends?Some people think this is a big mistake.Fortune published an article titled “Why Dividends Still Outweigh Stock Repurchases” a few years ago. The author believes that dividends are real tangible evidence that a company cares about shareholders. He wrote: “Dividends are like mailed checksAnd stock repurchases put shareholders in trouble and never benefit ordinary people. The money that could have flowed to your account did not belong to you in the end. Of course, dividends deposit cash into shareholders’ bank accounts, but shareholders alwaysCash can be obtained by selling part of the stock.In essence, the dividend policy needs to be determined by shareholders.With the commission-free mechanism now in place, selling stocks is as easy as cashing a dividend check.Recently, Barron’s wrote an article advocating a balance between dividend payout and stock repurchase.The article states: “Apple can take a more balanced approach by doubling its dividend and cutting its annual repurchase program by $ 15 billion to about $ 52 billion. This will bring a 2% dividend yield, which is in line with the standardThe S & P 500 is flat. “This balance may make sense. Many employees have a choice between stocks and bonds in their fixed-contribution accounts for pensions, and they have chosen a half-share approach.When asked whether the cause of some lucky or unfortunate event was A or B, many people would happily answer: “Both!” Maurice G. Kendall, a famous British statisticianA description of balance was once published: “If someone asserts that the earth is rotating from east to west, while others believe that it is rotating from west to east, there will always be some kind citizen suggestions, maybe both sides sayIt makes sense, maybe there is a bit of bias; or the truth may be somewhere between the two extremes, or the earth may not have rotated at all. “Balance is attractive on the surface, but usually there is only one answer, and itIt is not a balanced split of differences.With 100% stocks, people may be better off after retirement.A and B rarely need to bear the same responsibility, but for shareholders, stock repurchases are usually more cost-effective than dividends.The father of value investing, John Burr Williams, was the first to propose the law of conservation of investment value: the value of a company depends on the cash it generates, no matter how it is described or pastedLabel.The intrinsic value of a company that distributes part of its free cash flow to shareholders does not depend on whether this distribution is called a dividend or a share buyback.However, this label is really important for investors.As is often the case, taxes are disruptors to transactions and make stock repurchases more preferable than dividends.The U.S. federal government is taxing dividends at the same rate as long-term capital gains (0%, 15%, or 20%, depending on reporting status and taxable income), while ordinary dividends are applied to wages, interest, and other ordinary incomeHigher income tax rates.This tax difference gives repurchase stock a clear advantage over dividends.Dividends give shareholders no choice but to pay taxes in cash.And through stock repurchases, shareholders have a choice.They can sell part of their stocks and pay taxes on capital gains, or they can let their investments take their course. After all, having choice is better than nothing.In addition, even if they do sell their shares, they will not pay taxes on all sales, they only pay taxes on capital gains.Suppose an investor bought Apple stock for $ 100 per share in 2016, and now its stock price is around $ 300.If the investor received a $ 900 dividend, a 15% dividend tax would be $ 135.If the investor sold three Apple shares for $ 900, the 15% tax rate on $ 600 capital gains would be $ 90.Dividend tax is 50% higher than capital gains tax.The value of Apple’s stock will not be affected, but after the IRS pays taxes, the remaining funds in shareholder bank accounts will definitely be affected.In addition, investors may not have to sell Apple shares for $ 900, after all, Apple’s stock price has tripled.If an investor raises $ 900 by selling another small gain, the capital gains tax will be much lower than $ 90.A better option is that if the prices of certain stocks in an investor’s portfolio fall, they can sell such stocks and deduct losses from other gains.No one plans to buy stocks whose share prices will fall, but when it comes to selling stocks to raise cash, there is a compelling reason to make up for tax losses by liquidating unsuccessful investments.Paying a dividend tax of $ 135 is much worse than paying little or no capital gains tax, or achieving deductible losses.The only compelling reason for Apple to pay dividends instead of buying back stock is that it believes its stock is overpriced.Apple’s approach is to issue more shares rather than buy them back.Many analysts believe that Apple will do so.With 10-year U.S. Treasury rates below 2%, even a company as great as Apple paying a 1% dividend is still attractive pricing.If Apple doesn’t think its stock price is abnormal, then it should increase repurchases instead of paying more dividends.(Tencent Technology Review / Golden Deer).