Dividend Policy Theories: Share Repurchases vs. Dividends

Company X has consistently paid dividends over the past decade and has established a reputation for doing so. Recently, however, the management has indicated they are considering a shift in their dividend policy, focusing instead on stock buybacks. This decision has caused a stir among investors, given the implications for the company’s valuation and overall performance.

According to dividend policy theories, which of the following statements most accurately reflects the rationale behind their consideration to switch from dividends to share repurchases?