Companies splurged on share buybacks in 2014's first quarter, and investors splurged on buyback funds.
The amount companies spent buying back their own shares jumped 59 percent compared to a year ago, according to Standard & Poor's. Over that time, exchange-traded funds focused on buybacks saw assets quadruple to $3.3 billion. Despite the jump, buyback ETFs largely live in the shadows of dividend-focused ETFs, which have about $60 billion in assets. While the buyback trend may slow, companies that do buybacks tend to be solid, profitable companies, and thus good investments.
Both dividends and share buybacks allow a company to pass on earnings to shareholders. Buybacks typically bump up the stock price, and do so without tax consequences for stockholders -- unless they sell and must pay more in short-term capital gains. Dividend payments are taxed as ordinary income in the year they're received.
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