Why Do Companies Buy Their Stocks Back?

We know why companies issue shares but why would they buy them back? When a company repurchases its own stock, it is reducing the total number of shares outstanding.  Companies can also do a stock split to achieve relatively the same thing. Stock split would be turning ten stocks into five for example.  However, for this article we will be focusing on companies actually buying their stocks back from you.

Buying back stocks gives the company a bigger percentage of the pie as well as increasing the stock price.  The less shares outstanding the more the share price will increase. Supply in Demand for example is a good term to describe this. Every company’s goal is to increase their share price, which in turn gives them more money.

Most companies do not have the funding for this but some do, check out some of the companies below buying stocks back in 2023.

• Apple spent $19.6 billion to buyback stocks in its 2023 fiscal third quarter (ending April 1). Apple’s board of directors have approved 90 billion for an upcoming buyback program.

• Microsoft spent $4.9 billion on buybacks in its third quarter fiscal year of 2023. Microsoft renews its buyback program every three years. It last approved buyback was 60 billion in 2022.

• Meta (Facebook) spent $9.2 billion on buybacks in its first quarter fiscal year of 2023.  Under its existing program, it still has a whopping $41.3 billion dollars remaining for buybacks.

Benefits

• Return of Surplus Cash to the Shareholders.
• Increase in the Value of Shares.
• Increase in Price of Undervalued Share.
• Reaching the Perfect Capital Structure.
• Consolidating the Control.
  

Buybacks alone are not a reason for investors to rush into a particular stock, but they are an added bonus. How you might ask? Because every time, for example, Apple, repurchases its stock, the remaining investors are left with a larger share of a shrinking pie (the pie being the number of shares in circulation). This in turn increases the share price. For example, you could own 1,000 shares of a company worth $1 each and after a buyback program; those same shares could be worth $2.

Therefore, you can see why it is a good thing when companies buy their stocks back. This gives you an opportunity to bring in some good profits. I would suggest however that you be careful. A company who does not wish to be public anymore will eventually buy all their shares back.  This is still not bad but if you are looking for a long-term stock to hold onto this will affect your portfolio.