What Is a Stock Buyback?

Stock buybacks are one way for public companies to return capital to shareholders. But what is a stock buyback, and why are they so prevalent?

stock buyback written on purple and green paper next to a blue notebook
(Image credit: Getty Images)

Stock buybacks have been rising in recent years as a means for public companies to give money back to investors. Large U.S. companies have spent over $3.9 trillion in the last five years on stock repurchases, according to S&P 500 Dow Jones Indices. But what are stock buybacks exactly, and why don't companies just pay the money out as dividends? 

In fact, some go even farther and want to know why the money isn't just used by the company.

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Mark R. Hake, CFA
Contributing writer, Kiplinger

Mark R. Hake, CFA, is a Chartered Financial Analyst and entrepreneur. He has been writing on stocks for over six years and has also owned his own investment management and research firms focused on U.S. and international value stocks, for over 10 years. In addition, he worked on the buy side for investment firms, hedge funds, and investment divisions of insurance companies for the past 36 years. Lately, he is also working as Chief Strategy Officer for a tech start-up company, Foldstar Inc, based in Princeton, New Jersey.