A buyback is when a company purchases its own shares of stock.
What is a buyback?
When a business has excess cash, company executives decide how to allocate it. They might reinvest the money back into the business—like developing new products or building new factories. They can also return the cash to shareholders through a dividend. Another possibility is using the cash to buy shares of their own stock.
When a company buys its own stock, the number of shares available in the market decrease. A declining supply in stock means the price of the stock will increase. This can benefit shareholders, as they will experience higher investment returns. A buyback can also help executives that are paid based on stock performance.