With buybacks your profit is taxed once. With dividends, you first pay tax on your dividends. When you reinvest your dividends, you then pay tax again on the return of those reinvested dividends, and so on.
Let's see what happens to two companies, one of which pays 10% dividend each year, and the other which increases in price 10% each year. Use a tax rate of 15%.
The first company: Every year we get 10% dividend, pay 15% tax on that, have 8.5% post tax dividend. Reinvest in company.
value = initial * (1.085)^nyears
The second company: Every year it increases in value by 10%. If we ever were to sell we would have to pay 15% tax on appreciation.
value = initial + initial * (1.1^nyears-1) * 0.85
Let's see what happens to two companies, one of which pays 10% dividend each year, and the other which increases in price 10% each year. Use a tax rate of 15%.
The first company: Every year we get 10% dividend, pay 15% tax on that, have 8.5% post tax dividend. Reinvest in company.
value = initial * (1.085)^nyears
The second company: Every year it increases in value by 10%. If we ever were to sell we would have to pay 15% tax on appreciation.
value = initial + initial * (1.1^nyears-1) * 0.85