A company may choose to repurchase stock rather than pay out dividends when:

Question

Quizplus · Accepted Answer

When a company repurchases its own stock, it is not making a commitment to distribute more cash in the future, as it might with a regular dividend. Additionally, the decision to repurchase stock suggests that the company believes that the stock is undervalued and that the repurchase will benefit remaining shareholders. If the company were to pay out a bumper dividend, it would create the expectation of similar payouts in the future, which could be difficult to sustain.

A Company May Choose to Repurchase Stock Rather Than Pay