What is a Stock Buyback?
A buyback (share repurchase) is when a company uses its cash to buy its own shares on the open market, reducing the total shares outstanding.
Why Companies Buy Back Stock
- Return cash to shareholders - Alternative to dividends
- Signal confidence - Management believes stock is undervalued
- Boost EPS - Fewer shares means higher earnings per share
- Offset dilution - Counteract shares issued for employee compensation
Buybacks vs Dividends
- Buybacks are tax-efficient (no immediate tax)
- Dividends provide regular income
- Buybacks are flexible (can be reduced in bad times)
- Dividends are expected (cuts are punished by market)
Evaluating Buyback Quality
- Are shares actually decreasing or just offsetting dilution?
- Is the company buying at fair or inflated prices?
- Is it funded by debt?
Finding Buyback Information
Companies disclose buyback programs in 10-K and 10-Q filings. Track shares outstanding over time to see actual reduction.