Apple, Alphabet, Meta, and Microsoft Have All Done Major Share Buybacks This Year -- Should You Join Them?
When a company is highly profitable, it sometimes accumulates a pile of cash so large that it can't effectively reinvest it in the business. Therefore, it chooses to return money to shareholders instead.
It can do so by paying a cash dividend or initiating a share repurchase (buyback) program. A buyback involves the company taking a sum of money (usually approved by its board of directors) and buying its own shares in the open market, just like any other investor. This shrinks the number of shares in circulation, organically increasing its price per share.
If a company has 1 billion shares in circulation and trades at a price of $100 per share, it is worth $100 billion. If it spends $10 billion repurchasing its own stock, it could buy 100 million shares, reducing its share count to 900 million.
Source Fool.com
