Share buybacks are on the rise in a sign that companies are sensing an improvement in the trajectory of the U.S. economy.
Companies like Meta (META), Disney (DIS), and Uber (UBER) have all announced plans to buy back their own stock this fiscal year. And companies are acting on these share buyback authorizations, with S&P 500 members buying back $63 billion worth of their own shares in the first week of February, the most in a single week, according to Deutsche Bank data. This is the highest total share buyback since May 2023.
Parag That, director of global asset allocation and U.S. equity strategy at Deutsche Bank, told Yahoo Finance that when earnings rise, share buybacks often follow. This is because a company's free cash flow often increases as its earnings improve. Companies will first use the funds to pay down debt. The remaining funds are then often used to pay dividends, increase capital expenditures to reinvest in the company, and in some cases buy back shares.
Share buybacks reduce the total amount of stock available to the public, increasing investors' stake in the company and increasing their share of potential dividends. Although seen as a positive for investors, they are often the first to be cut in tough times.
This means that a resurgence in share buybacks could be seen as a sign that companies feel they are in a stronger position than they have been in the past few quarters, when share buybacks went through a lull.
“They haven't said everything is clear yet and we are probably completely out of the slowdown,” Satte said. “But at the last minute, they're saying, 'Yes, we're seeing signs and things are getting better.'”
