Right, these moves are not the same. To be the equivalent, the company would need to offer to buy the newly created shares from the investor at a price equal to the value of the dividend (even if that is a premium over market value).

Over a long period of time, Option 2 results in a company with huge cash reserves that aren't generating extra returns (see: apple). This could lead to a situation where the market value of the stock becomes much less than its intrinsic value and a hedge fund (or similar) could acquire a significant holding in the company and compel the board to accept a complete buyout at a discount. Forcing shareholders to accept 20-30% less and leaving them to sue for the difference.

Dividends are the end-game for every company. It doesn't matter if they distribute cash or buy back stock -- eventually they need to put money in the hands of investors.