These Stocks Are Flashing Buy Signals. Are They Right?
Share buybacks have long been controversial.
The tactic of inflating earnings per share by repurchasing shares from the market and retiring them gives companies a way of growing earnings per share without actually increasing underlying profits. Wall Street generally cheers the maneuver, as it sees it as one way of returning to cash to shareholders (the other being dividends). Companies often prefer to return capital with share buybacks instead of dividends, as investors expect dividends to be consistent and generally to grow each year, while buybacks can be deployed strategically when the stock price is low and management thinks it's cheap.
Select politicians and activists, on the other hand, have long decried buybacks as a financial engineering gimmick and a tool for corporate bigwigs to enrich themselves and shareholders rather than invest to grow their business and hire more people. In the aftermath of the 2017 tax cut, stock buybacks surged as corporations used the tax windfall to repurchase their own shares and juice per-share profits. This move provoked loud jeers from critics.
Source Fool.com
