The dividend is taxable ordinary income. The increased share value is not taxable until sold, and then it’s capital gains; usually a much lower rate.

Correct. That's part of the tax efficiency, the whole point for some investors.

Even if you set your dividends to automatically reinvest via a DRIP program, you still pay taxes on dividends in the year in which they are issued. This reduces the effect of compounding.

> plus the stock

The key point in a buyback is that each share of stock becomes worth more because the company is divided into fewer units. So each share is worth more than it would be had the case instead been used to pay dividends.