Stock Buyback

A share buyback is a company purchasing its own stock in the market. Cancelling the shares it buys reduces the total number outstanding.

Fewer shares means a larger claim for each remaining holder, since the same profit is divided among fewer shares and earnings per share rise. Like dividends, it returns value to shareholders.

It has a tax advantage over dividends. Dividends are taxed on receipt, while a buyback shows up in the share price, deferring tax until you sell.

Timing is the problem. Buying when the shares are expensive wastes shareholders' money, and companies commonly buy dearly in profitable booms while lacking cash to buy cheaply in downturns.

Care is also needed when it is tied to executive pay. If earnings per share drives compensation, there is an incentive to improve the metric through buybacks rather than by growing the business. Check whether the shares were actually cancelled. Buying them back only to reissue them as employee compensation leaves the share count unchanged and the effect disappears.