It should delight shareholders everywhere that 2023 has seen many ASX companies continue to buy up their own shares.
Most investors are familiar with the primary way that an ASX share can return capital to its investors: by paying out dividends. But share buybacks can be just as lucrative as a dividend, and could even be preferable in some circumstances.
Even the legendary investor Warren Buffett has frequently discussed his love of share buybacks and why he favours a buyback over paying out a dividend at his company Berkshire Hathaway.
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How does a share buyback work?
A share buyback is, well, all in the name. A company buys back its own shares on the open market, just as any other investor would. However, instead of holding the shares over time, as you or I might, the company retires or destroys them.
This has several consequences. Firstly, by reducing the supply of available shares, a share buyback puts upward pressure on the company's share price. That's because, under the laws of supply and demand, reduced supply leads to higher prices. So that's one win for shareholders.
Fewer shares also mean that all remaining shareholders see their actual ownership of the company rise. Say I own 10 shares of Company X, and Company X has a total of 100 shares outstanding. As such, I would own 10% of the company.
But if Company X buys back 10 shares from the open market, and retires them, there are now only 90 shares outstanding. I still own my 10 shares, but instead of a 10 % ownership, I now own 11.11%. That entitles me to more of the company's earnings and dividends as a result. And, unlike a dividend, this all happens without me having to pay any tax.
If a company makes a habit of buying back its own stock, it can have a huge impact on shareholder returns over time.
Which ASX stocks have been buying back their own shares in 2023?
So let's talk about which ASX shares have been buying back their own stock in 2023 so far.
Luckily for us, we don't have to sift through ASX notices to find out. The data has been compiled for us by S&P Market Intelligence. So here is a list of some of the ASX shares that have conducted share buybacks in 2023 to date:
- Amcor plc (ASX: AMC)
- Cochlear Limtied (ASX: COH)
- Qantas Airways Limited (ASX: QAN)
- Australian Foundation Investment Co Ltd (ASX: AFI)
- Eagers Automotive Ltd (ASX: APE)
- AMP Limited (ASX: AMP)
- Pinnacle Investment Management Group Ltd (ASX: PNI)
- Objective Corporation Ltd (ASX: OCL)
- Helia Group Ltd (ASX: HLI)
- Temple & Webster Group Ltd (ASX: TPW)
- Djerriwarrh Investments Ltd (ASX: DJW)
- Estia Health Ltd (ASX: EHE)
- Kogan.com Ltd (ASX: KGN)
- OFX Group Ltd (ASX: OFX)
- Mayne Pharma Group Ltd (ASX: MYX)
- AMCIL Limited (ASX: AMH)
- Garda Diversified Property Fund (ASX: GDF)
- US Masters Residential Property Fund (ASX: URF)
- Cogstate Limited (ASX: CGS)
Many of these shares, including Qantas, Cochlear, Eagers Automotive, and Kogan, have had exceptionally strong share price growth this year so far. And from what we know about buybacks, there's little doubt that these were at least partially assisted by the companies' actions in buying back their own stock.
