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Why Smart Companies Are Buying Back Their Stock? And Why You Should Care?
Mar.18, 2025, 1:36 AM ET author: luckystock
Stock buybacks are all the rage, and for good reason. Big-name companies like Apple, Google, and Meta are spending billions to repurchase their own shares. But why? And what does this mean for long-term investors like you? Let’s break it down.
Who’s Buying Back Stock?
In 2024, some of the biggest companies on the planet announced massive buyback programs:
Apple (AAPL): A record-breaking $110 billion buyback
Alphabet (GOOGL): $70 billion share repurchase plan
Meta (META): Buying back $50 billion worth of stock
Adobe (ADBE): Repurchasing 10.8% of its shares for $25 billion
Marathon Petroleum (MPC), FedEx (FDX), Microsoft (MSFT), NVIDIA (NVDA), and more are also following suit.
Even Warren Buffett’s Berkshire Hathaway has a stake in DaVita (DVA), which bought back 10% of its shares, boosting earnings per share (EPS) and making each remaining share more valuable.
Why Are Companies Buying Back Their Own Stock?
Instead of paying dividends, many companies choose buybacks to increase shareholder value in a tax-efficient way. Here’s how:
Fewer Shares, Higher EPS – When a company buys back shares, the total number of outstanding shares shrinks. Since profits stay the same, each remaining share gets a bigger piece of the pie. Investors love higher EPS, and higher EPS often leads to…
Higher Stock Prices – Stocks trade at a multiple of earnings (P/E ratio). If EPS rises and the P/E stays the same, the stock price naturally increases.
Tax-Friendly for Investors – Unlike dividends, which are taxable income, stock buybacks quietly raise the value of each share without triggering immediate taxes for shareholders.
A Sign of Confidence – When a company buys back its stock, it’s saying “We believe we’re undervalued”. This can be a strong signal that management sees long-term potential.
What Does This Mean for Investors?
For long-term investors, stock buybacks reduce supply, increase value, and reward patient shareholders. They are especially powerful when companies have strong cash flow and disciplined capital allocation.
Final Takeaway
Companies like Apple, Meta, DaVita, and Microsoft aren’t just throwing money around. They know their stock is worth holding onto. When businesses buy back shares, they’re making your shares more valuable over time.
If you’re an investor, keep an eye on companies with strong buyback programs—they’re often hidden gems for steady long-term growth.
What are your thoughts? Do you prefer dividends or buybacks? Let’s discuss below!