Stock Buybacks: Why Do Companies Repurchase Shares?

What Are Stock Buybacks?

By Matthew Frankel, CFP – Updated Sep 5, 2025 at 2:38 AM

Key Points

U.S. companies spent $773 billion on stock buybacks in 2023, expected to spend $885 billion in 2024.
Stock buybacks increase a company's earnings per share by reducing outstanding shares.
Buybacks offer a tax-efficient way to return capital to shareholders compared to dividends.

Over the past couple of decades, stock buybacks have become a big part of how companies use their profits to return capital to shareholders. While buybacks remain below their all-time high, U.S. companies spent $773 billion buying back their own shares in 2023 and are expected to buy back $885 billion in stock throughout 2024.

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A graphic listing reasons to buy back shares of stock, including un-diluting the stock and increasing earnings per share. — Image source: The Motley Fool.

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The stock is undervalued

//If you could buy a $100 bill for $50, wouldn't you do so as often as possible? That's essentially one of the biggest reasons companies choose to buy back stock.

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Intrinsic Value

The intrinsic value of a stock is its true value. It refers to what a stock (or any asset, for that matter) is actually worth -- even if some investors think it's worth a lot more or less than that am

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Pros and cons of stock buybacks. Chart by author.
Pros of Stock Buybacks	Potential Drawbacks of Stock Buybacks
Shareholder value can be created if stock is bought back for less than its intrinsic value.	Many companies buy back stock just to boost earnings per share and sometimes overpay.
They can make earnings growth look stronger.	They reduce available cash on a company's balance sheet.
Buybacks offset dilution from stock-based compensation.	Buybacks are subject to a 1% excise tax.
They are a more flexible way to return capital than paying dividends.	They can use capital that could have been used in more productive ways (such as investing in new technological innovations).
Stock buybacks return capital to shareholders but aren't taxable on the individual level like dividends.

The bottom line on stock buybacks

In most cases, companies returning capital to shareholders, either in the form of buybacks or dividends, is a good thing. In many ways, buybacks have some significant advantages over dividends, especially if the stock is truly trading for less than its intrinsic value.

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However, like most investing topics, there isn't a one-size-fits-all answer to whether stock buybacks are good or bad for investors. They should be evaluated on a case-by-case basis.

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About the Author

Matt Frankel, CFP, is a contributing Motley Fool stock market analyst and personal finance expert covering financial stocks, REITs, SPACs, and personal finance. Prior to The Motley Fool, Matt taught high school and college mathematics. He holds a bachelor’s degree in physics from the University of South Carolina, a master’s degree in mathematics from Nova Southeastern University, and a graduate certificate in financial planning from Florida State University. He won a SABEW award for coverage of the 2017 Tax Cuts and Jobs Act. He is also regularly interviewed by Cheddar, The National Desk, and other TV networks and publications for his financial, stock market, and investing expertise.

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Matt Frankel has positions in Berkshire Hathaway. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.