This week, energy giant Chevron announced plans to buy back $75bn of its shares, five times the oil giant's current buyback plan, along with an increase in dividend payouts. A prevailing theme from our 2022 in 5 charts was how 2022 was the year for stuff-that-comes-out-of-the-ground — with Chevron's oil and gas clearly no exception.
Along with dividends, buybacks are one of the two main ways that companies reward shareholders for their investment. By buying shares in the open market and then retiring them, buybacks reduce the share count in the company. So if you own a slice of Chevron — and the company does a buyback — your slice of the company gets bigger... and therefore more valuable.
Although technically illegal in the US until 1982, buybacks have become the preferred way for companies to throw off cash. That's partly because companies can be more opportunistic about them, but it's also because they essentially reward shareholders with capital gains, rather than income, which is generally more tax efficient. Apple has been the king of the buyback, splurging $500bn+ on purchasing more than one-third of its outstanding shares in the last 10 years.
The buyback blowback
At the company level, buybacks can sometimes signal a lack of imagination — suggesting that the company hasn't got any projects that it deems worth pursuing relative to just returning cash to shareholders.
More widely, buybacks have become something of a political football. Last year, after much back-and-forth, a new 1% tax on buybacks was signed into law. On 2022's figures, that would net the US treasury ~$8bn a year, which some have lauded as a victory for the non-shareholder class, while others have called it simply a "tax on savers & investors".
