Amongst several prominent ASX 200 shares, including Commonwealth Bank of Australia (ASX: CBA), reporting their latest earnings this week was Telstra Group Ltd (ASX: TLS).
Yes, Telstra dropped its full-year results for FY2025 yesterday.
The market didn't think much of them.
As of yesterday's close, the Telstra share price had fallen a hefty 2.6%. That's despite the telco posting some fairly solid numbers.
For the 12 months to 30 June 2025, Telstra brought in $8.6 billion in earnings before interest, tax, depreciation and amortisation (EBITDA), up 14% from FY2024. On an underlying basis, earnings were up 4.6% year over year.
On the bottom line, Telstra announced a reported net profit after tax of $2.3 billion, which was a 31% increase in last year's profit. In underlying terms, profits were up 1.8%.
This all helped Telstra to boost its final dividend by 5.6% to 9.5 cents per share, fully franked, of course.
But that wasn't the only shareholder return announced. The telco also revealed that the $750 million FY2025 share buyback program that wrapped up in June would be extended by another $1 billion.
This might prove to be even more lucrative for shareholders than that dividend increase. But why?
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Telstra stock and the billion-dollar share buyback
Well, a company that wants to return capital to shareholders can conventionally do so in two different ways. The first is with a dividend, and involves literally putting cash in the pockets of shareholders.
The second is through buybacks. Buybacks do not offer the same tangible, cash-in-hand returns that dividends do. However, they can be just as effective, perhaps even more so, than a dividend.
A share buyback like the one Telstra has been undertaking involves a company buying back its own shares from the open market. The company then 'decommissions' those shares, cancelling them out of existence.
This has a number of flow-on effects. Firstly, it reduces the supply, or pool, of shares that are available for investors to trade with. As the laws of supply and demand dictate, decreasing the supply of a traded product results in an increase in price. That's obviously good news for existing Telstra shareholders.
Secondly, it increases the relative ownership of all remaining shareholders. Say a company has 100 shares and you own ten of them. That gives you an effective 10% ownership stake in the entire company. But let's now say that the company buys back ten of its shares and destroys them. You still have ten shares, but now out of a total of 90. This means you now own 11.1% of the company, increasing the value of your investment without you having to invest additional capital.
There are other benefits to undertaking a buyback program, too. For example, the company, Telstra in this case, will have to pay dividends to fewer shareholders going forward, leaving more cash to play with.
It's for these reasons that all existing Telstra shareholders should be very happy to see Telstra spending $1 billion buying back its own stock.
