> Companies can also reinvest profits in the business
The point of the stock market is to efficiently let investors re-deploy capital from mature companies (earned through capital gains and dividends) to growing companies. If all the lemonade stands that need to be built have been built, your research dollars will be less effective than others’, then constraining capital to the incumbents, by dissuading dividends or buybacks, results in (a) bad investments and (b) rent seeking by the agents overseeing this restricted capital.
The point of the stock market is to efficiently let investors re-deploy capital from mature companies (earned through capital gains and dividends) to growing companies. If all the lemonade stands that need to be built have been built, your research dollars will be less effective than others’, then constraining capital to the incumbents, by dissuading dividends or buybacks, results in (a) bad investments and (b) rent seeking by the agents overseeing this restricted capital.