Share buybacks, when executed well, can be a powerful way for stocks to generate value for their investors.

Often, when a business buys its stock as part of a share repurchase program, it lowers the number of shares outstanding. While dilution through stock-based compensation or stock offerings can impede this, a steadily declining share count offers the potential for more-substantial returns.

If a company buys back 20% of its shares, its earnings per share (EPS) increase by 25%; if it lowers its count by half, EPS doubles. 

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Source Fool.com