Greg Abel, the new CEO of Berkshire Hathaway, announced on March 5 on CNBC’s “Squawk Box” that the company would start repurchasing shares of its own stock.
For Berkshire, this is a relative rarity — the company hasn’t bought back shares since the second quarter of 2024. But for companies like Berkshire, a financially mature conglomerate worth more than $1 trillion and with plenty of excess cash, the move has become increasingly common.
In 2025, companies in the S&P 500 spent about $1 trillion buying their own shares, according to estimates from investment research firm Morningstar, up from a record $942 billion in 2024. Last year was also the fifth straight year in which companies spent more on buybacks than on cash dividends, Morningstar reports.
Buyback programs, like dividends, are touted by companies as a way to return cash to shareholders, and, under the right circumstances, can be viewed by investors as a positive sign for the stock, says Rob Leiphart, a certified financial planner and vice president of financial planning at RV Capital Management.
Investors should do some research, however, before buying on buyback news, he adds, since some companies purchase shares as a way to make short-term numbers look better.
“It is a form of financial engineering,” Leiphart says.
How stock buybacks work
Say you’re a company with plenty of free cash flow — money that’s left over after making all the necessary expenditures to maintain the business. How do you use that cash to create value for shareholders? Maybe you plunk the money into research and development or use it to acquire another firm.
For many large, financially mature firms, the answer is to give some money back to the people who own your stock. One classic way to do this is to pay a dividend, a regular (often quarterly) cash distribution to shareholders.
Over the past half-decade, though, companies have been more inclined to spend their money on buybacks. Last year, Apple announced a $100 billion share repurchase program, and Alphabet authorized $70 billion in buybacks. Both companies also pay a modest dividend.
Under buyback programs, instead of making cash distributions, companies repurchase their own shares on the open market. While not as tangible as having cash in hand, reducing the number of shares effectively means that each share an investor owns is a bigger piece of the overall pie. And because corporate earnings are expressed as earnings “per share,” taking shares off the market can make the stock look more attractive to other potential investors.
The latter feature can incentivize corporate executives to initiate buybacks to create a short-term bump, rather than making moves that will benefit shareholders over the long term, says Leiphart.
Companies that issue a lot of compensation in the form of stock options may also use buybacks to keep the value of those shares from diluting, Leiphart says.
When stock buybacks are a positive sign for investors
So what should investors make of it when a company announces a buyback program? As long as the company isn’t taking on debt to fund a buyback, it’s a generally positive sign for a company’s financial health, says David Sekera, chief U.S. market strategist at Morningstar.
“It’s just the way that management is letting the marketplace know that they are generating excess free cash flow above what the internal needs are for the company,” he says. “And in fact, probably even generating more free cash flow than what they necessarily need to spend on growth to be able to maintain their long-term guidance targets.”
When it comes to buybacks — like all investing — the goal is to buy low and sell high, Sekera says. If a company buys shares when they’re trading below their true value, it’s a boon to shareholders. If they buy when they’re overpriced, “it’s value-destructive,” he says.
“Management teams seem to perpetually think that their stock is undervalued,” he adds.
Abel’s announcement came with the context that Berkshire rebuys shares “at any time we believe the repurchase price is below our intrinsic value, conservatively determined.”
It’s one of many reasons why financial pros would caution against buying any stock on the sole basis of a buyback announcement. It’s also smart to speak with a trusted financial professional before making any changes to your portfolio.
Overall, it’s important to consider any buyback program in the context of your overall outlook for the underlying business, says Leiphart.
“Do they have a market leading product? Do they maintain that leadership with that product? Has the corporate brass been there for some period of time and good leadership is in place that has had success and will continue to have success hopefully in the future?” he says. “Along with those considerations, [a buyback is] maybe one thing that you add as an ingredient when you put it all together.”
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