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.

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.

The post Returning capital: These ASX companies have been buying back their shares in 2023 appeared first on The Motley Fool Australia.

For Westpac Banking Corporation (ASX: WBC), the story has been no different. Its share price has gained less than 1% year to date, since falling off highs of $24 early in June. The bank closed on Wednesday at $21.41 a share.

For fellow 'big four' banking giant, National Australia Bank Ltd (ASX: NAB), the picture is a little more positive. Its share price has climbed more than 11% this past month, extending gains to around 4.6% this year to date.

Investment manager makes the switch

Yet, portfolio managers at Amcil Ltd (ASX: AMH) recently dumped their NAB position, according to the investment company's preliminary annual results.

Amcil is a listed investment company (LIC) that manages a concentrated equity investment portfolio of ASX shares.

The company made a switch in its allocation of ASX banks. It said the "…transaction saw a switch in our major bank investments, with Westpac replacing National Australia Bank, primarily for reasons of relative valuation".

Westpac trades at 15.36 times trailing P/E whereas NAB is priced at 14.93 times trailing P/E. Each share has an earnings yield of roughly 6.5%.

Amcil realised $14.7 million in proceeds from the transaction, whereas it purchased $14.07 million in Westpac equity.

Those weren't the only changes the portfolio managers made. They added seven new companies throughout the period, including names such as Netwealth Group (ASX: NWL) and Domino's Pizza Enterprises Ltd (ASX: DMP).

They also disposed of Xero Ltd (ASX: XRO), Sydney Airport (ASX: SYD), and Ramsay Healthcare Ltd (ASX: RHC).

As for its projections moving forward, Amcil notes the impending headwinds looming on the horizon:

The equity market impact of higher inflation and interest rates is moving from a focus on valuation multiples, to concern over the outlook for corporate earnings. Cost-of-living pressure for consumers is driving many economic indicators sharply lower, a necessary condition for bringing inflation back to more sustainable levels.

The ability of companies to grow their market share against weaker competitors, pass on cost inflation in higher prices to preserve profit margins and rely on balance sheet strength to navigate volatile trading conditions will be particularly important in the year ahead.

Amcil is down almost 17% this year to date and 12% lower for the year.

The post Why this ASX investment company dumped NAB for Westpac shares appeared first on The Motley Fool Australia.