Why do companies buy their own shares?

BarcelonaHave companies buying their own shares gone crazy? Some people are asking, given the trend, which last year amounted to more than €167 billion worldwide; this year, they are poised to continue along these lines of shareholder compensation. The trend has also taken hold in Spain and doesn't seem to be stopping. Since the beginning of 2025, transactions of this type worth more than €7 billion have been registered with the National Securities Market Commission (CNMV), involving companies on the main stock market index, the Ibex 35, but also companies listed on the continuous market.

There are several reasons why a method of rewarding shareholders that was more common in the US is now also a trend in Spanish stock markets. "Firstly, because there are several sectors that have accumulated high levels of cash, have posted record profits in recent years, and cannot identify attractive investment opportunities, so they opt for a policy of higher shareholder returns," explains Javier Fernandez-Galiano, director of transactions at Deloitte.

This expert adds that many of these companies had low share prices, so their management team believed that a share buyback could be attractive for both the company and the shareholder. And finally, Fernández-Galiano highlights "the greater role of activist funds in the shareholding of several of these companies, which may demand higher shareholder returns from the company if other investment opportunities are not identified."

Jaume Puig, general manager of GVC Gasesco Gestión, points to an underlying reason that drives companies to buy back their own shares: they are trading below their value. "It's a quick way to reward shareholders and generate value," he adds. Unlike in the US, in Europe and also in Spain, there are many companies whose shares are priced on the market below what they should be, given their results. The recent declines linked to Donald Trump's tariff policy will allow for greater buyback strategies, a policy that has only one limit: maintaining share liquidity, Puig explains. When this liquidity is compromised, the CNMV forces capital increases or takeover bids (OPBs) for delisting. The most recent case is that of the former Catalana Occidente (now Occidente).

Omar Rachedi, a professor in the Department of Economics, Finance, and Accounting at Esade, points out that a large part of the variable compensation of senior executives at these companies is linked to share price performance. Purchases, in a context of falling stock prices, allow prices to rise, he explains. The Esade professor points out that there are two types of companies: those that focus on dividends and those that focus on growth, that is, those that focus on share value. He gives the example of Alphabet in the US, the parent company of Google, which has never paid dividends and has always opted to buy back shares on the market. This approach breaks the old Wall Street adage: "A cow for its milk, and a stock, for crying out loud, for its dividends."

The amounts being traded on the Ibex 35 do not include other stocks on the continuous market that have opted for this method of compensating their shareholders, such as Amrest Holding, the multi-brand restaurant operator (La Tagliatella, Sushi Shop, Blue Frog and Baco), which is listed. So far this year, operations of this type have been announced by Endesa, Repsol, IAG (parent company of Iberia, British Airways and Vueling), Banco Santander, BBVA, CaixaBank and Cellnex.

The repurchase of shares or share buyback, in English, occurs when a company buys back its own shares and redeems or eliminates them. With fewer shares outstanding, each shareholder's stake increases, allowing them to receive a larger proportion of dividends.

An example helps explain what this type of transaction entails. Let's assume a company with 100,000 shares. A shareholder owns 20,000 shares, representing 20% of the capital. The company buys 20,000 shares on the market and redeems them (removes them from circulation); 80,000 shares will remain, and the shareholder's stake will increase from 20% to 25%, entitling them to a larger proportion of dividends. This represents an increase in earnings per share. However, there may also be a share buyback without redeeming them. In that case, it would be a transaction that could aim to distribute these shares among the company's executives, with the intention of making them part of their compensation or as a program to increase the stock's liquidity.

Endesa has also recently launched the second tranche of its share buyback program, with a maximum monetary value of €500 million. The company's board of directors approved this phase, which will conclude by December 31st at the latest. The entire program has a maximum value of €2 billion.

The information released by Santander, for its part, raises the buyback to €1.587 billion, an amount equivalent to 25% of the group's ordinary profit in the second half of last year. According to the program submitted to the CNMV, assuming an average price of €5 per share, the maximum amount to be purchased would be €317.4 million, equivalent to 2.1% of the bank's share capital. This plan is being implemented from February 6 to June 27. In total, the program envisaged by the entity chaired by Ana Botín amounts to €10 billion between this year and next. Another notable program is that of IAG. The airline group surprised analysts by announcing a €1 billion acquisition of its own shares, more than three times what the markets expected. The transaction became a sign of optimism for investors, who interpret the company's prospects as positive in the coming quarters.

No tax implications

One of the advantages of share buybacks is that they have no tax implications for the beneficiary unless they sell the shares. This is an advantage over dividends, which are taxed as savings income under personal income tax (IRPF). Another difference is that, while dividends involve the distribution of past profits, share buybacks are consummated through the rise in the stock market in anticipation of future profits.

Share buybacks are common, especially on the US stock market. In recent years, the trend has grown. After the pandemic-related shutdown in 2020, the form of shareholder compensation rebounded due to excess liquidity and the lack of attractive investments in the face of inflation. The Deloitte executive admits that, despite being a remuneration system that already existed, it has recently experienced significant growth in Europe.

It's unclear how the market turmoil following the Trump administration's tariff announcements in the US could influence share buybacks, according to Fernández-Galiano. "Of course, the sharp declines we've seen in recent days could encourage companies with high liquidity to buy back their own shares because they perceive them to be undervalued and that a share buyback program can help boost market share prices. But we must take into account the high volatility that today will lead to caution and a preference for saving whatever liquidity they may have," he adds.

The banking sector has been one of the most active in using this formula in recent years. According to the Bank of Spain's latest supervisory report, "since 2021, Spanish banks have been slightly more active in this type of operation than the average of Single Supervisory Mechanism entities, in terms of buybacks relative to annual net profit. In general, entities carry out these buybacks as a way of utilizing their excess capital." From January 1, 2021, to December 31, 2024, Santander, BBVA, CaixaBank, Sabadell, and Unicaja carried out buybacks worth a combined €17.732 billion.