<p>We study a one-period equilibrium model in which a firm optimally determines its equity distribution level to maximize the expected utility of a representative shareholder. Dividends and share buybacks, the two most prevalent payout methods, are compared and contrasted. In our baseline setup, we demonstrate a Modigliani-Miller-style equivalence, where both dividend payouts and share buybacks result in the same shareholder welfare, distribution ratio and firm’s investment level. However, share buybacks lead to a higher firm price in equilibrium. This conclusion is robust to alternative modeling specifications, such as heterogeneous beliefs among investors and endogenous riskfree rates. We also provide examples where this equivalence breaks down due to distortions in managerial incentives or market frictions. For example, firm managers endowed with employee stock options strictly prefer buybacks over dividends. In the presence of trading constraints, the relative attractiveness of dividends versus buybacks becomes ambiguous.</p>