Investors love share buybacks, but they don’t always generate the kinds of returns one might imagine. It takes a keen eye to identify companies with buybacks that generate significant returns for shareholders.
Buybacks, by themselves, increase the value of each share. Repurchases reduce the number of shares outstanding. Holding earnings constant, earnings per share rise, supporting gains in share price. Repurchases also indicate a company’s confidence in using earnings and balance sheet cash to finance these purchases.