Buyback
Definition
When a company purchases its own shares from the open market, reducing shares outstanding and increasing earnings per share.
Explanation
Share buybacks have become the dominant form of shareholder return, exceeding dividends in aggregate since 2010. S&P 500 companies spent over $900B on buybacks in 2023. Proponents argue buybacks are tax-efficient (deferred capital gains vs. immediate dividend income) and flexible (can be paused in downturns). Critics argue buybacks inflate EPS artificially, benefit executives with stock options, and divert capital from productive investment. The most value-accretive buybacks occur when companies repurchase shares below intrinsic value.