Buy-backs are more tax efficient because they increase stock price. Stock price increases are not taxed until they are realized, so it is beneficial to long-term stockholders who may not sell for many years, possibly not for decades.
Dividends are taxed in the year of payment, so investors lose some of that gain within a year.
On the flip side, buy-backs can be a poor way to spend cash, as companies might buy back at high stock prices. So the third way to reward the stockholder is to just keep that cash stashed in a bank account -- you get neither taxed (dividends) nor do you buy back potentially inflated shares. However, you have the cash stashed away to do either if you ever need to, or find a good opportunity to (e.g., stock price slump.)
Dividends are taxed in the year of payment, so investors lose some of that gain within a year.
On the flip side, buy-backs can be a poor way to spend cash, as companies might buy back at high stock prices. So the third way to reward the stockholder is to just keep that cash stashed in a bank account -- you get neither taxed (dividends) nor do you buy back potentially inflated shares. However, you have the cash stashed away to do either if you ever need to, or find a good opportunity to (e.g., stock price slump.)