Buyback, also known as a stock repurchase,
is an action taken by a company to buy back its own shares from the
open market or from its shareholders. This process involves the
company using its own funds to purchase outstanding shares of its own
stock, which are then removed from the total number of outstanding
shares in circulation.
Share buybacks are typically carried out for a number of reasons, including returning capital to shareholders, increasing earnings per share, reducing the total number of outstanding shares, increasing the value of the remaining shares, and providing flexibility in managing the company's capital structure. By reducing the number of outstanding shares, share buybacks can also make a company's earnings per share look better, as the earnings are spread across a smaller number of shares.
A share buyback can be initiated through various 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 open market through a broker or other intermediary. In a tender offer, the company offers to buy back a specific number of shares from shareholders at a set price, typically at a premium to the current market price.
In some cases, share buybacks can be funded through the issuance of debt, which can increase the company's leverage and financial risk. However, if the company has excess cash on hand or is generating strong cash flows, it can use those funds to finance the share buyback.
While share buybacks can provide beneefits to both the company and its shareholders, they can also be controversial. Some critics argue that share buybacks can be used to artificially inflate earnings per share and boost stock prices, rather than investing in research and development or other long-term growth strategies. Additionally, some shareholders may view share buybacks as a signal that the company does not have better uses for its cash, or that management is not making strategic investments to drive future growth. As with any corporate action, it is important 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.