Share buybacks roar back – but how good an idea are they?
Adrian Holliday, 13 May 2021
Spurred by the speed of global vaccination roll-outs, stimulus boosts and a white-hot US first-quarter earnings period, some US companies have upped dividend payments to their shareholders. Alternatively, they’re buying back their own shares in ‘buybacks’. So what are share buybacks? Is the UK seeing a similar wave – and how good an idea are share buybacks for investors?
Share buybacks in brief
While many households hoarded cash during the pandemic, many companies did the same, wary of how their business would cope as the 2020 pandemic spread.
In a crisis it’s useful for companies to send a signal to shareholders that they’re behaving responsibly – hence a measure of cash stockpiling
But post-crisis, company share buybacks can look pricey: buying shares at market price with cash isn’t always cheap, especially if the shares are trading above their intrinsic worth.
The US has witnessed a blow-out pace of share buybacks in the first four months of 2021, which is worth $484bn according to Goldman Sachs. These buybacks include Apple, which repurchased $19bn in stock in the last quarter, which is just part of the $77bn of its own shares it has purchased in the last 12 months.
