Stock buyback
MarketsDefinition
When a company uses its own cash to buy back its own shares from the stock market. Those shares are then retired. The company has fewer shares floating around afterward, which means each remaining shareholder owns a slightly bigger slice of the pie.
Buybacks are a tax-friendly alternative to dividends. Shareholders who want cash can sell a small amount themselves; shareholders who want to compound keep their position untouched. Critics say buybacks can come at the expense of hiring, research, or new factories. Supporters say they return cash to shareholders who can put it to better use elsewhere.
Buybacks are a tax-friendly alternative to dividends. Shareholders who want cash can sell a small amount themselves; shareholders who want to compound keep their position untouched. Critics say buybacks can come at the expense of hiring, research, or new factories. Supporters say they return cash to shareholders who can put it to better use elsewhere.
Formula
Earnings per share = Net income divided by shares outstanding. Buybacks shrink the denominator.
Example
Apple has bought back more than $700 billion of its own stock since 2012, the largest buyback program in history. Roughly 40% of Apple's earnings-per-share growth over that period came from the shrinking share count, not from making more money.