Why Warren Buffett loves share buybacks—and why you need to use this investment strategy

Apple (NASDAQ:AAPL)

Apple (NASDAQ:AAPL) accounts for approximately half of Buffett’s portfolio. Since 2012, this blue-chip tech firm has repurchased its own shares for more than USD$572 billion, according to Bloomberg and according to Yahoo! Finance the iPhone maker spent another USD$18 billion on buybacks at the end of 2023.

For Buffett, he started investing heavily in Apple in 2016, while the dividend and share buyback program was in full swing.

These days, investors looking for consistent share buyback and dividends, should consider purchasing shares in this USD$2.7-trillion juggernaut.

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Alphabet (NASDAQ:GOOGL)

Alphabet (NASDAQ:GOOGL) is reliably profitable, but has shown no indication of any interest in dividends. On the flipside, Alphabet is fare more amenable to share buybacks.

Since 2018, Google’s parent company has regularly repurchased shares. In 2022, Alphabet CEO Sundar Pichai announced a massive share buyback worth USD$70 billion. In April of the next year, this share buyback program was renewed with another repurchase worth USD$70 billion. To give this context, this relatively recent share buyback was one of the largest buyback programs in North America — nearly as big as Apple’s USD$90 billion program announced in March 2023.

Tractor Supply (NASDAQ:TSCO)

Tractor Supply Company (NASDAQ:TSCO) isn’t a high-profile tech company, like the previous two equity firms, but this stable blue-chip firm does initiate generous share buybacks. As an agricultural products company with a multitude of retail stores spread across North America, Tractor Supply Company can often weather tougher economic times, while benefitting from economic surpluses.

Despite it's stable success, the firm doesn't boast a strong dividend yield — just 2% — however, its share buyback program is impressive. Total shares outstanding dipped from USD$123 million in 2018 to USD$112 million by the end of 2022. The company’s management expects to deploy USD$575 million to $675 million in share repurchases in 2023, approximately 2% of the company’s outstanding shares. Forbes Advisor estimates the company’s shareholder yield, as a result of these share buybacks, to be above 4%.

The fact that it’s underrated makes it even more appealing as this means investors in search of an overlooked share buyback opportunity may want to consider adding this stock to their list.

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Adding share buyback stock to your portfolio

To easiest way to add shares of Apple (NASDAQ:AAPL), Alphabet (NASDAQ:GOOGL) or Tractor Supply Company (NASDAQ:TSCO) to your investment portfolio, is through an online brokerage account. If you're just getting started, look for no-fee or low-fee trading accounts. Good options include:

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Share buyback FAQs

What is a share buyback?

A share buyback occurs when a company purchases its own shares from the marketplace, subsequently cancelling them, which leads to a reduction in share capital. This process results in fewer shares being available, thus increasing each shareholder's proportionate ownership in the company and potentially boosting their share of future dividends.

Is a stock buyback a good thing?

It depends. The process of stock buybacks can be advantageous for investors as they recoup their initial investment often at a rate higher than the market value of the stock. As well, those who retain their shares tend to see an increase in share value. However, it's important to note that stock buybacks don’t always yield positive results for investors.

What happens when there’s a share repurchase?

When a company conducts a share buyback, the number of shares in circulation decreases. This reduction in supply can lead to an increase in the market price of the remaining shares.

Is a share redemption positive or negative?

Again, it depends. While it's true that stock buybacks can potentially raise the price of a stock, it's not a guaranteed outcome. The reasoning behind this is that buybacks can increase earnings per share due to the decreased number of outstanding shares. However, it also reduces the amount of cash on the company's balance sheet, a factor that is usually considered when valuing the stock.

Why do companies buy back shares?

With a buyback, a company has the potential to boost its earnings per share. This is because the same total earnings are now divided among fewer shares, increasing the value of each individual share. Thus, buybacks can enhance the potential return for shareholders who choose to retain their ownership.

Sources

1. Bloomberg: Apple’s Huge Buybacks Matter as Much to Investors as iPhones and Macs (April 17, 2023)

2. Tractor Supply Company: Fourth Quarter adn Fiscal Year 2022 Financial Results (2023)

2. Forbes Advisor: 10 Best Stocks For Share Buybacks In July 2024 (July 1, 2024)

— with files from Romana King