Stock Buyback
When a company repurchases its own outstanding shares from the market, reducing share count and increasing earnings per share.
What is Stock Buyback?
A stock buyback (or share repurchase) is when a company uses cash to purchase its own shares on the open market or through tender offers, reducing the number of shares outstanding. Buybacks benefit remaining shareholders by increasing earnings per share (since the same net income is divided by fewer shares), potentially boosting the stock price. Companies often prefer buybacks over dividends because they are more flexible — dividends, once initiated, are difficult to cut without sending a negative signal. Critics argue buybacks can signal a lack of better investment opportunities or be used to inflate EPS to meet executive compensation targets. The Inflation Reduction Act of 2022 introduced a 1% excise tax on stock buybacks in the US.
Example
Apple spent approximately $90 billion repurchasing its own shares in FY2024, reducing shares outstanding from about 15.8 billion to 15.2 billion. With net income of $93.7 billion, earnings per share rose to approximately $6.11 vs. an estimated $5.94 had no buybacks occurred — a 2.9% EPS boost from the buyback program alone.
Source: Apple 10-K FY2024