A stock buyback occurs when a company repurchases its own shares from the market, reducing the number of outstanding shares. With fewer shares available, each remaining share represents a larger ownership fraction. section 2.4.6
Buybacks offer an alternative to distributing cash through dividends. Unlike dividends, which can create expectations of recurring payments, buybacks give companies more flexibility over when and whether to return capital. section 2.4.6
Compare the two shareholder-return mechanisms by asking:
- Does the company prefer a recurring cash payment or a less-committed repurchase program? section 2.4.6
- Will the reduced share count make the remaining shares more valuable, or is that assumption being treated too simply? section 2.4.6
