What are share buybacks?
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A boom in share buybacks has seen a number of companies using this strategy to return money to investors and boost the value of their stock.
Tech company Microsoft (MSFT) has announced a $60bn (ļæ”45.4bn) share buyback programme, while also raising its quarterly dividend by 10%.
It isn't the only "Magnificent Seven" tech company to announce a huge buyback in 2024, with Apple (AAPL) launching a $110bn repurchasing plan and Alphabet (GOOGL, GOOG) also unveiling a $70bn programme. Chipmaker Nvidia (NVDA) and Facebook-parent Meta (META) have announced $50bn buyback programmes in 2024.
Buybacks have also grown in popularity in the UK, as major London-listed companies such as oil major BP (BP.L) and bank Barclays (BARC.L) have launched their own buyback plans.
What are share buybacks?
A share repurchase, or share buyback, is when a company rebuys its own shares and returns funds to its investors.
The issuing company usually acquires its own stock by distributing cash to existing holders, paying the market value per share, in exchange for a portion of the companyās outstanding equity.
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When a company repurchases its own shares, this reduces the number of shares held by the public.
Companies can purchase the stock on the open market or from shareholders directly.
Why do companies do this?
Buybacks became particularly popular during the Covid pandemic as the economic fallout left companies with mounting debt piles from loans and government bailouts. Repurchasing shares enabled firms to reduce debt, shore up their finances and consolidate ownership.
Share buybacks globally hit a record $1.31tn in 2022, but then dipped back $1.11tn last year, according to Janus Henderson Investors.
Meanwhile, the latest data from S&P Global Market Intelligence showed that share buybacks were nearing their lowest annual value since 2020 during the pandemic.
The aggregate value of share buyback transactions for companies trading on major global exchanges through to 9 September 2024 was nearly $164bn, down 35% on the same period last year. That figure was also even lower than the nearly $179bn in buybacks in the comparable period in 2020.
Despite this slowdown in the amount companies are repurchasing, the strategy is still popular, with data from S&P Global Market Intelligence showed the number of buybacks is up year-on-year.
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There were 983 buyback transactions worldwide this year up to 9 September, up from 823 for the same period last year and the highest number since the first nine months of 2019.