Weekly Puzzle #10: Buybacks returns - Good, Bad or Neutral News?

What is it?

Stock buybacks have increasingly become the vehicle for companies to return cash to shareholders, supplanting dividends, the classic 20th century cash return mechanism. That said, buybacks do have up and down years; 2023 was a slow year for buybacks, but they have picked up again in 2024. There has also been a heated debate among investors, corporate executives and economists as to whether buybacks are good or bad for companies. I think that the buybacks are bad crowd is confused about in their arguments, and seem to operate on the presumption that reinvesting money is always better than returning cash for the greater good. At the same time, the buybacks are good crowd (which includes a lot of bankers and investors) has a fundamental misunderstanding of what drives value. I do think that buybackseet a need that has developed among companies for flexibility, and that much of the debate is overwrought. You can find my arguments on buybacks in this post:

https://aswathdamodaran.blogspot.com/2014/09/stock-buybacks-they-are-big-they-are.html

As for the effects of buybacks on stock prices, I try to work through the mechanics in this mor recent post:

https://aswathdamodaran.blogspot.com/2023/03/data-update-7-for-2023-dividends.html

  Key Questions to Answer

  1. Reading the arguments for and against buybacks, which side do you come down on? (And it is okay to disagree with me)
  2. More generally, in what types of companies is a buyback good news for investors?
  3. More generally, what types of companies are hurt by doing stock buybacks?
  4. Getting down to specifics, pick any company on the list of the top ten last year, and evaluate whether they were suited to buy back stock?
  5. Implicit in the critique of stock buybacks is the belief that cash that is used on buybacks is not being reinvested back into the company and that this leads to less overall investment in the macro economy? Is this true? If not, why not? If yes, is that bad for the economy?