Share Buyback

A share buyback (or stock repurchase) is when a company purchases its own outstanding shares from the open market or through a tender offer. Buybacks reduce the number of shares outstanding, which mechanically increases earnings per share (EPS), return on equity (ROE), and each remaining shareholder's ownership stake. Companies execute buybacks for several reasons: returning excess cash to shareholders (alternative to dividends), signaling management's belief that shares are undervalued, offsetting dilution from stock-based compensation, or optimizing capital structure. S&P 500 companies have spent trillions on buybacks in recent decades, with Apple alone spending over $600 billion. Critics argue buybacks can be used to artificially inflate EPS, benefit executive compensation tied to per-share metrics, and divert capital from productive investments like R&D or employee wages. The 2022 Inflation Reduction Act imposed a 1% excise tax on corporate stock buybacks.