Lesson 4.5 · 5 of 5 · Dividends in depth
Share buybacks explained: how they raise earnings per share
A share buyback is when a company buys its own shares on the stock market, usually to cancel them. With fewer shares, the same profit is split among fewer owners, so earnings per share go up. It’s another way of returning cash to shareholders alongside dividends, but it only helps if the price paid is sensible.
Terms in this lesson
- Stock buyback
- The company buys its own shares on the market, so each shareholder's slice gets bigger.
- EPS
- The company's net profit divided by the number of shares.
- Dilution from stock-based pay
- How much your stake shrinks because the company pays its staff in shares.
How a share buyback works
Definition
What do the remaining shareholders gain?
A bigger slice of the same company.
The company pays cash to shareholders who want to sell, and their shares are cancelled. Everyone else now owns a larger percentage of the business without buying anything. Earnings per share rise even if total profit stands still. But the company has less cash: a stock buyback only makes sense if the shares were worth at least what it paid.
The same $500 million profit: $5 a share before, $5.56 after.
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Create a free accountApple’s share count over ten years
Apple’s average diluted share count for financial years 2016-2025, in billions, adjusted for the 2020 split: 22.00, 21.01, 20.00, 18.60, 17.53, 16.86, 16.33, 15.81, 15.41 and 15.00.
Between financial years 2016 and 2025, Apple’s net profit rose from $45.7 billion to $112.0 billion, an increase of 145%. Over the same period its average share count fell by 31.8%. In financial year 2025 alone, Apple spent $90.7 billion on buybacks and $15.4 billion on dividends: 85% of the cash it returned to shareholders went on buybacks.
Analysis page
Apple on einvestitii
The analysis page shows Apple’s profit, dividend and share price, with up-to-date data.
Buyback or dividend: the differences
Dividendcash in your account, on set dates
- Every shareholder gets it without selling anything
- The market treats it as a promise: companies avoid cutting it
- Generally taxed when you receive it
- Hard to reduce without the share price suffering
Buybacka bigger slice of the company
- Flexible: the company can scale it up, down or stop it without much fuss
- Generally, tax only comes when you sell at a gain
- You get no cash unless you sell
- Destroys value if the company overpays for its shares
Tax rules differ from country to country; you’ll find them in the tax chapter. The broad idea: a dividend gives you taxable income now, while a buyback raises the value of the shares you already hold.
Dilution from employee shares and the US tax on buybacks
Watch out
Why doesn’t the share count fall as much as you’d expect?
Because the company is issuing new shares to employees at the same time.
Many companies, especially in tech, pay part of their staff in shares. The new shares push the total up, and part of the buyback merely offsets this dilution. At Apple, share-based pay cost $12.9 billion in financial year 2025. That’s why you look at the share count from one year to the next, not just the amount spent on buybacks.
Lessons are educational. They are not a recommendation to buy or sell. Investing involves risk and you can lose money. Sources: Apple, Forms 10-K for financial years 2016, 2019, 2022 and 2025 (average diluted shares 2016-2025, net income $45,687 million in 2016 and $112,010 million in 2025, diluted EPS $8.31 before the 2020 four-for-one split and $7.46; in 2025: buybacks $90,711 million, dividends paid $15,421 million, share-based compensation $12,863 million); IRS, Notice 2023-2 on the stock repurchase excise tax (section 4501, Inflation Reduction Act, Public Law 117-169 of 16 August 2022).