It is said the total wealth from the ownership of one share in either case is the same.
But the market value per share can fluctuate due to other reasons so I don’t really understand why share repurchases and dividends are equivalent in terms of total wealth.
Say, the shareholder receive cash dividends and soon after that the market price of the shares soared due to some positive news, the shareholder will have received some cash and still be holding the same amount of shares. Shouldn’t it be better than share repurchase?
I think you are thinking about this too hard. Yes there could always be factors such as positive earnings surprises that can affect the value of the stock but what the material is trying to say is much simpler. You dont need to be adding in these “other reasons” for market fluctuation.
Fundamentally speaking you can have one of two possible outcomes for say a $100 stock that either pays a $1 dividend or the firm repurchases shares (ignoring tax consequences):
You can own the stock outright and the firm can repurchase the shares from you in the open market. The net effect to you as a shareholder is that you will have $100 cash in your brokerage account after the transaction.
You can hold the share and the firm can pay the $1 dividend. After the dividend has been paid, theoretically the stock should trade at the previous market price less the dividend. In this example, the stock would be trading at $99 after the dividend. Therefore the net effect in this case is also $100 in your brokerage account ($1 of cash and $99 of stock) after the transaction.
As you can see, ignoring taxes (and other factors), shareholder wealth is the same. I think this is the important rational to understand for exam purposes.