Share buybacks are increasing in a sign that businesses are feeling better about the trajectory of the U.S. economy.
Companies like Meta (GOAL), disney (DIS) and Uber (UBER) all announced plans to buy back shares this earnings season. And according to data from Deutsche Bank, companies are acting on these buyback authorizations: S&P 500 members bought back $63 billion of their own shares during the first week of February, the highest total of buybacks in a single week since May 2023.
Parag Thatte, head of global asset allocation and US equity strategy at Deutsche Bank, explained to Yahoo Finance that as earnings rise, buybacks often follow suit. This happens because as profits improve, companies' free cash flow typically increases. Companies will first spend that money paying off debts. The remaining funds are then typically used to pay dividends, increase capital expenditures to reinvest in the company, and potentially repurchase shares.
Share buybacks reduce the total number of shares outstanding to the public, increasing investors' ownership of the company and their share of potential dividends. It's seen as a positive for investors, but it's often the first thing to get cut when times are tough.
This means that the return of buybacks can be seen as a sign that companies feel they are in a stronger position than in recent quarters when buybacks hit a pause.
"They are not yet saying that everything is clear and that maybe we are completely free of a slowdown," Thatte said. "But on the sidelines they say, 'Yes, we are seeing signs or things that are appearing.'"
