U.S. tax policy favors capital gains income over dividend income, provided that you're not a short-term trader. People overlook this massive thumb on the scale when pondering the trend toward share buyback programs rather than dividend payments.
Can you explain this more? Is this a recent (~decade) thing? I remember my grandfather investing in companies with a solid dividend as much as share price growth; has something fundamentally changed?
For over a hundred years now, realized gains (i.e. the difference between what you paid for a stock and what you sold it for) have been taxed at different rates depending on how long the investment was held.
Over the decades, the definition of "long-term" and it's special treatment has jumped around ALL OVER THE PLACE (i.e. 6 months, 2 years, 10 years, etc). During the Reagan administration (believe it or not), the special treatment for long-term capital gains was abolished. It was brought back around the turn of the century under Clinton (believe it or not).
So it's possible that a middle-aged investor during the 1980's and 1990's grew accustomed to the conventions of an era without a long-term capital tax rate. And never adjusted their mindset or investment strategies when the long-term rate returned. However, the 80's and 90's are a historical aberration.
Although the definition of "long-term" has been one-year for quite awhile now, the special rates for long-term gains were continuously lowered during the 2000's. So that it's now EXTREMELY more advantageous to accrue long-term capital gains rather than dividend income. Those rate changes have been one driver for recent share buyback programs (the far greater driver has been the availability of cheap money under post-2007 Federal Reserve policy). However, it's worth noting that even the lowest capital gains rate today is higher than when the tax was first introduced.
