Headlines report buybacks in dollars. Ninety billion sounds enormous, and for Apple it is, but Apple is also worth almost five trillion dollars. Buyback yield fixes the scale problem by dividing what a company spent on repurchases by what the whole company is worth.
Buyback yield = Cash spent on repurchases (last 12 months) ÷ Market capitalisation
A company worth $100 billion that buys back $4 billion of stock in a year has a 4% buyback yield. If nothing else changed, its share count would fall about 4% a year and each share's claim on earnings would grow by roughly the same amount.
A worked example
| Repurchases | Market cap | Buyback yield | |
|---|---|---|---|
| Apple | $82B | $4,900B | 1.7% |
| Citigroup | $21B | $217B | 9.8% |
Apple's programme is the largest on earth in dollars. Relative to its size it is a modest 1.7%. Citigroup's programme is a quarter of the size but, against a far smaller market value, it retires nearly a tenth of the bank each year. For a shareholder who keeps their shares, the second is a much bigger deal.
What counts as high
- Below 1%: housekeeping. Often just enough to offset employee stock grants.
- 1% to 3%: a real programme. Typical of large, mature companies that also pay a dividend.
- 3% to 6%: aggressive. Usually a company with strong free cash flow and a management that thinks the shares are cheap. Banks, energy producers and some media companies live here.
- Above 6%: rare and worth investigating. Either the shares are genuinely depressed, or the company is funding the buyback with debt or asset sales, or the market has already fallen sharply since the money was spent.
Shareholder yield
Add the dividend yield and you get shareholder yield: the total cash a company hands back to owners relative to its value. Two companies with a 5% shareholder yield may split it 5/0 or 1/4 between dividends and buybacks. The total tells you about capital discipline; the split tells you about flexibility and tax. The rankings can be sorted by shareholder yield.
Four traps
- Gross versus net. Cash spent on repurchases ignores shares issued to employees. A company with a 3% gross buyback yield and 2% annual stock-based compensation only shrinks its share count by about 1%. Always check the share count. See net buybacks.
- Denominator moves. Market capitalisation is today's number; repurchases are last year's. After a 40% share price fall, a steady programme suddenly shows a much higher yield. That is not generosity, it is arithmetic.
- Lumpy programmes. A single large tender offer makes one year look extraordinary. Look at the five-year total too.
- Borrowed money. A yield funded by new debt is a transfer from bondholders to shareholders, not a return of profits. Compare repurchases with free cash flow.