Stock Buybacks: Good or Bad?

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By Selena Maranjian (TMF Selena)
May 19, 2003

Q. Should I think favorably of a company buying back shares of its own stock?

A. In many cases, yes. Repurchasing shares with excess cash is an excellent way for a company to boost its stock price and please shareholders. It's also a sign of management's confidence in the company's future.

By announcing it's buying back shares of its own stock, a company can signal that it thinks its stock is a good buy at current prices. Of course, it might also be the case that the firm can't think of anything more productive to do with the money.

If the shares are bought back when they're trading at inflated prices, then the company isn't doing its shareholders any favors -- in fact, it's destroying value. Buybacks aren't unilaterally good or bad.

Here are some Fool articles that will give you deeper insights into share buybacks:

• The Power of Buybacks
• Dividends vs. Share Repurchases
• Why Share Buybacks Matter (scroll down for the article)
• When Management Hoards Cash

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This question and answer is adapted from The Motley Fool Money Guide: Answers to Your Questions About Saving, Spending and Investing. For answers to this and 499 other common money questions, check it out -- it's a handy resource.