CFA Level I · CFA Level I Exam · Equity Instrument Features
Which component of an equity investor's total return is most likely to come from a company's decision to repurchase its own shares rather than from a cash dividend?
Price appreciation is the component most affected by repurchases. Buybacks return cash by reducing shares outstanding, which tends to raise per-share value and the market price, whereas dividend yield measures only cash dividends paid to shareholders. Remaining holders therefore benefit mainly through capital gains.
- AReinvestment income
- BPrice appreciationCorrect
- CDividend yield
Explanation
A repurchase distributes cash to selling shareholders and reduces shares outstanding, which tends to support the share price and earnings per share. Returns to remaining holders therefore come through price appreciation rather than dividend income. Dividend yield reflects cash dividends only.
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