Which option should NVIDIA choose: dividends or share repurchases?

Goal: connect dividend policy theory (Chapter 15) to a real capital-return decision at a high-growth firm.

Deliverables

• Short position memo (1 page): choose dividends or buybacks, then justify with theory + company evidence.
• One chart: a simple exhibit showing how your choice affects shareholders (taxes, flexibility, signaling, EPS, dilution).
• Quiz + games: complete the Chapter 15 quiz and at least one game.

Dividend policy theory (Chapter 15)

Theory	Core idea	Prediction	What to look for in NVIDIA
Dividend irrelevance (M&M)	In perfect markets, payout policy does not change firm value; value comes from investment policy and cash flows.	Payout form should not matter.	Are there meaningful frictions (tax, info, agency, transaction costs) that make payout form matter?
Bird-in-hand	Investors prefer “certain” dividends over uncertain capital gains.	Higher dividends can reduce ke and raise price.	Does NVIDIA have a shareholder base that values stable income? Would a higher dividend change perceived risk?
Tax preference	Dividends are taxed now; capital gains are often taxed later and (sometimes) at lower rates.	Buybacks can be more tax-efficient than dividends.	Who are NVIDIA’s marginal shareholders (taxable vs institutions)? How important is tax efficiency?
Signaling	Dividend changes convey management information about future cash flows.	Dividend increases can lift price; dividend cuts can hurt.	Would a higher dividend credibly signal durability, or would it constrain flexibility in a volatile tech cycle?
Residual (life-cycle) view	Firms should fund positive-NPV projects first; pay out only “excess” cash.	High-growth firms pay low dividends; mature firms pay more.	How many high-return reinvestment opportunities does NVIDIA still have (AI, R&D, capacity, acquisitions)?

NVIDIA: what the company is currently doing (real filings)

Source: NVIDIA Form 10-Q (fiscal 2026 Q2, filed Aug 27, 2025). :contentReference[oaicite:0]{index=0}

Authorization capacity (important for “can they keep buying back?”)

• Board approved an additional $60.0B in share repurchase authorization (no expiration) on Aug 26, 2025; $71.2B available as of that date. :contentReference[oaicite:1]{index=1}
• During fiscal 2026 Q2, the average repurchase price rose across the quarter (illustrating “buybacks can be expensive when valuation is high”). :contentReference[oaicite:2]{index=2}

Decision framework (how to choose dividends vs buybacks)

Criterion	Dividends tend to dominate when…	Buybacks tend to dominate when…
Flexibility	Cash flows are stable and management wants a long-term commitment.	Cash flows are volatile/cyclical; firm wants discretion on timing and size.
Investor clientele	Shareholder base prefers income (yield, “dividend aristocrat” mindset).	Shareholder base prefers capital appreciation and tax deferral.
Signaling	Firm wants a strong, recurring signal of cash-flow durability.	Firm prefers a “soft signal” without the stigma of future dividend cuts.
Valuation sensitivity	Less sensitive to “timing” (dividends don’t depend on price).	Best when shares are undervalued; risky if repurchases occur at peak prices.
Dilution control	Does not directly offset stock-based compensation dilution.	Can offset dilution and support EPS (common for tech firms).
Taxes & frictions	Better if investors are tax-insensitive (e.g., many institutions) and want certainty.	Often better when taxes favor capital gains and investors value deferral.

Recommended position (a defensible answer for this seminar)

For NVIDIA, a high-growth firm with substantial reinvestment opportunities and cyclical risk, the most defensible policy is:

Why this recommendation fits theory + the facts

• Residual/life-cycle logic: prioritize funding high-NPV growth (AI platforms, R&D, capacity, strategic acquisitions). A large dividend would reduce flexibility.
• Flexibility + stigma management: cutting a dividend is typically punished; buybacks can be scaled up/down without the same signaling damage.
• Dilution control: buybacks can offset stock-based compensation dilution and support EPS (a major rationale in tech).
• Observed policy is consistent: the company’s filings show buybacks dwarf dividends, and the board expanded authorization by $60B in 2025. :contentReference[oaicite:3]{index=3}
• Main caution: buybacks are valuation-sensitive—repurchasing heavily at very high prices can destroy value. (This is where your memo should be nuanced: “buy back, but be disciplined.”)

Discussion questions (use these in class or in your memo)

1. Clientele: Who do you think NVIDIA’s marginal investors are today—income seekers or capital gains seekers? How does that shape payout choice?
2. Signal vs flexibility: Would a meaningfully higher dividend strengthen credibility, or create a future constraint in a volatile industry?
3. Valuation: If you believe NVIDIA is overvalued, would you still recommend aggressive buybacks? What alternative uses of cash dominate?
4. Agency & governance: Do buybacks reduce agency costs (return excess cash) or increase them (management “financial engineering” to hit EPS targets)?
5. Policy design: Propose a rule (example: “repurchase only when EV/FCF is below X,” or “buy back enough to offset SBC, then reassess”).

Disclaimer (for education): This page is for educational use on jufinance.com and does not constitute investment advice.

Module links

Add or edit links as needed.

• PPT: Chapter 15 slides
• Quiz: Dividend Policy quiz
• Game 1: Dividend Policy Theories
• Game 2: Real-World Dividend Strategies
• Video: “Should NVIDIA Pay Dividends?” (self-produced)

Quick numbers (from NVIDIA filing)

• $0.01 cash dividend per share (declared/paid). :contentReference[oaicite:4]{index=4}
• $244M dividends paid in fiscal 2026 Q2. :contentReference[oaicite:5]{index=5}
• $9.7B repurchases in fiscal 2026 Q2. :contentReference[oaicite:6]{index=6}
• $60B additional buyback authorization approved Aug 26, 2025. :contentReference[oaicite:7]{index=7}

Suggested memo structure (1 page)

1. Claim: “NVIDIA should prioritize ___.”
2. Theory: 2–3 theories that best fit.
3. Evidence: cite NVIDIA’s payout behavior + one risk.
4. Policy rule: how you would implement it.
5. Conclusion: one paragraph.

Source document used for the real-company capital-return facts: NVIDIA Form 10-Q (fiscal 2026 Q2, filed Aug 27, 2025). :contentReference[oaicite:8]{index=8}