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Buyback - Stock Trading Glossary

A buyback, also known as a stock repurchase, is an action taken by a company to repurchase its own shares from the open market or directly from shareholders. In this process, the company uses its own funds to buy back outstanding shares, which are then removed from circulation.

Companies undertake share buybacks for various reasons, such as returning capital to shareholders, increasing earnings per share, reducing the total number of outstanding shares, enhancing the value of remaining shares, and providing flexibility in managing the company's capital structure. By decreasing the number of outtstanding shares, buybacks can improve the company's earnings per share, as profits are distributed over a smaller number of shares.

Share buybacks can be executed through several methods, including open market purchases, tender offers, or direct negotiations with shareholders. In an open market purchase, the company buys back its shares on the market via a broker or intermediary. In a tender offer, the company proposes to repurchase a specific number of shares from shareholders at a predetermined price, usually higher than the current market price. In some instances, share buybacks are funded through the issuance of debt, which can increase the company's leverage and financial risk. However, if the company has excess cash or is generating strong cash flows, it can use these funds to finance the buyback.

While share buybacks can benefit both the company and its shareholders, they can also be controversial. Critics argue that buybacks might be used to arttificially inflate earnings per share and boost stock prices, rather than investing in research and development or other long-term growth strategies. Some shareholders might view buybacks as a signal that the company lacks better uses for its cash or that management is not making strategic investments for future growth. As with any corporate action, it is crucial for investors to carefully evaluate the potential benefits and risks of a share buyback before making investment decisions.
 
Many top companies have engaged in share buybacks in recent years. Here are a few examples:

Apple Inc. (AAPL) - In 2021, Apple announced that it would increase its share buyback program by $90 billion, bringing the total program to $300 billion. The company has been steadily increasing its share buybacks in recent years, and has been one of the biggest buyers of its own shares in the market.

Microsoft Corporation (MSFT) - Microsoft has been consistently engaged in share buybacks over the years, and in 2021, the company announced a $60 billion share buyback program. The company has a history of using share buybacks to return capital to shareholders and maintain its strong financial position.

Alphabet Inc. (GOOG) - The parent company of Google, Alphabet has engaged in several share buyback programs over the years, including a $50 billion program announced in 2019. The company has also used share buybacks as a way to offset the dilution caused by stock-based compensation for employees.

Boeing Company (BA) - In 2018, Boeing announced a $20 billion share buyback program, which was later increased to $25 billion. The company has used share buybacks as a way to return capital to shareholders and offset the impact of its heavy capital expenditures.

Procter & Gamble Co. (PG) - Procter & Gamble, the consumer goods giant, announced a $10 billion share buyback program in 2020. The company has a history of using share buybacks as a way to return capital to shareholders and maintain its strong financial position.

 

  

 
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