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The Buyback Debate Rages On

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Stock buybacks had a gangbusters 2018, with companies purchasing $223 billion worth of their own stock in the final quarter of last year. That trend dropped down to a mere $205 billion in the first quarter of this year, but overall analysts expect this to be the biggest year for repurchasers yet. CEOs are thrilled about this development. Critics, less so. Buy What Backs? In case you need a refresher, a buyback is when a company purchases its own stock using cash reserves or profit. As we recently explained, this has the effect of driving up stock price by creating rarity, as the less shares of a company there are available to purchase on the stock market, the higher the price. Since CEOs typically own company shares and have various stock plans, buybacks make them wealthier without increasing their salary. So you can see why people like them. Big Fans While most CEOS, like Apple’s Tim Cook, are buyback fans, Warren Buffett and Jamie Dimon are particularly outspoken in their support. Dimon calls them a “no-brainer” and “an important tool that businesses must have to reallocate excess capital." Bye Buy One of the main complaints buyback critics have is that companies will use their excess capital to further enrich CEOs and investors, instead of spending it on employee compensation, research and development and other long-term investments. Buybacks have caught the ire of Presidential candidate Bernie Sanders, who along with Senate Minority Leader Chuck Schumer plans to introduce a bill that would require companies to increase employee compensation before they can repurchase shares. -Michael Tedder Photo: Brendan McDermid / REUTERS