In recent years, the phenomenon has become widespread amongst listed companies. Share buybacks have emerged as a flagship strategy for rewarding shareholders while also driving financial indicators higher. Compared to traditional dividend payments, buybacks offer several advantages that have fueled their popularity.
While dividends establish a company's credibility, any sudden interruption is immediately penalized by the market. Conversely, share buybacks provide genuine management flexibility and often more favorable tax treatment for shareholders. More subtly, by reducing the number of shares outstanding, a company can "engineer" its financial ratios. EPS (calculated by dividing net profit by the number of shares) increases mechanically. This perfectly legal maneuver can enable a company to present its results in a better light.
US listed companies are the most avid practitioners of share buybacks: over $1 trillion was dedicated to them in 2025, above the $740bn in dividends, according to Morningstar (Morningstar US Market Index, 1,167 companies).
In Europe (Morningstar Europe Market Index, 1,291 companies), 2025 share buybacks totaled €182bn (approximately $210bn at current exchange rates), more than double the amount in 2015. However, this figure has remained relatively stable over the last three years and remains below the record reached in 2022 (€219bn).
The "Good" vs. the "Bad" Buyback
The distinction lies not in the structure of the buyback, but rather in the context. For a company that is undervalued by the market, repurchasing its shares helps bring the stock price back toward its fundamentals, provided that operational investments (Capex) have been funded first.
Danger arises when companies take on debt to buy back their own shares. Loading up a balance sheet to entice the stockmarket is only a short-term fix. EPS that climbs without a real improvement in results betrays artificial growth. In the long run, a company is better off prioritizing a "fortress" balance sheet rather than an artificially inflated stock price.
The example of US airlines is striking. Between 2010 and 2019, the Big Four (American, Delta, United, Southwest) generated record profits. Rather than consolidating their cash reserves, they funneled nearly all their cash into share buybacks. For instance, American Airlines spent over $12bn. The result: when air traffic collapsed in 2020, these companies found themselves strapped for cash. The US government had to inject $54bn to prevent a technical bankruptcy of the sector.
The Opportunity Cost
The mechanics become serious when analyzing what this capital could have funded. For a company, excess cash is the natural engine for growth, restructuring, R&D, or employee training. This cash can also be used to align employee interests with those of the company through employee share ownership schemes.
Consequently, the question is not whether share buybacks are good or bad, but rather whether they are being carried out wisely or not.
