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Basics Of Buyback Programs : The Financial Crisis

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When companies reach higher degrees of success, they will eventually find themselves in the position that they are generating more cash they can reasonably reinvest in the business. The financial crisis has caused investors to pressure companies to distribute the accumulated wealth back to shareholders. Typically, companies can return wealth to shareholders through stock price appreciations, dividends of stock buybacks. In the past, dividends was the more common form of wealth distribution. However, as corporate america becomes more progressive and flexible, a fundamental shift has occurred in the way companies deploy capital. Instead of a traditional dividend payments, buybacks have been viewed as a flexible practice of returning excess cash flow. Buybacks can be seen as a signal as an efficient way to put money back into its shareholders pockets, as recently demonstrated by Apple’s capital return programs. Basics of Buyback Programs In recent history, leading companies have adopted a regular buyback strategy in order to return all excess cash to shareholders. By definition, stock repurchasing allows companies to reinvest in themselve by reducing the number of outstanding shares on the market. Typically, buybacks are carried out on the open market, similarly to how investors purchase stocks. While there has been a clear shift in wealth distribution from dividends to stock repurchasing, this doesn’t mean a company cannot pursue both. Apple has a robust capital return
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