Are share buybacks a good thing?

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UK companies are buying back their own shares at an increasing rate. The country’s index is already known for its payout friendliness, with dividends common among firms in stalwart sectors like oil and financials. But, from 2022 to 2024, buybacks made up 42% of the capital given back to shareholders across the FTSE 350. Compare that to 20% from 2017 to 2019. [1]

UK companies even outpaced their peers across the water last year, with 44% of large UK-listed firms reducing their share counts by at least 1%, compared to 39% in the US. [2]

UK share buybacks have become a bigger element of capital return

That trend shows no sign of slowing, with recent company updates showing buyback schedules building up across sectors. GSK, Unilever, Currys, Domino’s Pizza Group, JD Sports, Rolls Royce and Fever-Tree are just some of the UK-listed companies to have launched or renewed buyback programmes in 2025.

So, what’s behind it all and what does it mean for the companies themselves? Let’s dive in.

What do you do when a global pandemic throws the corporate playbook out the window? Well, if you were to ask UK companies, the answer seems to have involved hoarding cash in the face of complete and utter uncertainty. Corporate cash holdings rose from £20bn in March 2020 to around £109bn by July 2021 [3] and who can blame them? We couldn’t guarantee we’d get a steady supply of loo roll at one stage so pulling in the corporate purse strings surely felt like the only sensible move.

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The next question is, when things start to normalise, what do you do with all that extra cash? In the first instance, we saw a string of special dividends after Covid - a sign that companies were starting to breathe a sigh of relief and resume income payouts. One-off special dividends aside though, income policies tend to be fairly consistent for the companies that pay regular dividends. Their shareholders like them, sometimes rely on them, and look for stability with the prospect of dividend growth as they eye up the opportunity for the wider business.

So, you can’t really have a string of special dividends otherwise shareholders might be asking why you don’t just boost the regular dividend amounts. Buybacks can be a more flexible way to return cash to shareholders, without changing or updating dividend policies which the market will expect companies to stick to. In short, it’s becoming the go-to manoeuvre for ad-hoc payout plans.

At this point, it’s worth clearing up why buybacks are even part of a company’s arsenal in the first place.

If they are in the enviable position of having a nice big pile of cash to allocate, there are a few routes they could take:

1. Reinvest in the business. If your current operations gave you this pile of cash, what could bolstering those operations give you? If the compound growth potential is good here, it’s what growth-hungry investors will want to see.
2. Pay down debt. It’s not the most exciting choice but it can be the sensible one, especially if interest rates are high and that debt is starting to hurt.
3. Build cash reserves. This was the angle over Covid. Live to fight another day, and all that.
4. Make acquisitions. Cash-rich companies might decide it’s better to buy another business to boost their market share, step into a new industry, gain access to a particular asset or enter a new market. It can sometimes take a bit of effort to convince shareholders this is a better option than simply reinvesting in the company but, if it works out, a brand new revenue stream can be created.
5. Invest. Just like the rest of us investors, it can sometimes make sense for a business to build a stake in partners, suppliers or startups. It scratches that ‘acquisition’ itch without having to buy out a whole firm.
6. Return capital to shareholders. The one we’re talking about today. Investors can often cheer on divis (special or normal) or share buybacks but growth-heads can sometimes ask why there wasn’t a better option to fuel further growth. Can’t keep everyone happy, I guess.

If the company is a bit long in the tooth and current low growth rates mean reinvesting just wouldn’t move the needle that much, it can be useful to keep investors on board by getting that cash back to them.

A share buyback is when an issuer buys their own shares from existing shareholders, often through the stock market. Issuers do this to return surplus capital to investors and reduce the number shares in issue.

FCA, Share Buybacks in UK Listed Equities, Multi-Firm review, August 2025

Buying back shares and then canceling them reduces the overall number of shares, which should boost the earnings per share (EPS) reading simply because there are fewer shares out there now. It can all feel a bit artificial but it’s one way of making the accounts look a bit better.

Cynicism aside though, there are other reasons why buybacks can make sense and this is where the current flow of them could start to make sense.

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First, it’s not just retail and institutional investors that buy the dip from time to time. Where a company spots value in its own shares, it’s perfectly reasonable to snap them up. After all, no-one knows a company like its own board so seeing a string of buybacks at historically low valuations can give the market a bit of faith that the company sees a brighter future ahead. Of course, the market might see a problem if a company buys its own shares at punchy valuations and they’re likely to let them know about it.

The UK’s current forward price-to-earnings ratio (P/E) of 13x lags all major market peers and is on the low end compared to its own history [4]. Companies underneath the index bonnet might be using buybacks as a way to take advantage of what they could see as undervaluation.

Second, a mix of good capital management and geopolitical tailwinds means a lot of UK companies (especially those in the banking and energy sectors) are sitting on healthy cash flows and relatively low debt. Couple that with what has looked like a dearth of growth opportunities - UK economic growth has been fairly sluggish - and buybacks could be a way to use cash without committing to projects with precarious outlooks.

The fact that buyback programmes have been springing up across sectors and company sizes starts to piece together a bigger picture of UK listed companies.

For one, it shows how strong underlying cash flows are and how relatively unhindered balance sheets are by debt. Some of these programmes involve big numbers by UK standards (£2bn for GSK, £1bn for Reckitt Benckiser and Rolls Royce) which wouldn’t be possible unless group finances were already solid. So, even if the economic outlook is murky, these companies are well capitalised in general.

That last point is bittersweet, though - it really does reflect a lack of faith in UK economic growth to avoid big capital expenditure commitments and stay cautious instead. That’s not all to do with the UK - influences like tariffs and the increasing unpredictability of international trade relationships surely playing a part. But, with few avenues looking exciting, it backs up the case for buybacks.

A final point is that UK companies are doing what so many retail investors aren’t - snapping up their shares. Persistent valuation discounts are clearly attractive to boards and incrementally building their controlling stakes makes a leftfield takeover harder to achieve for any interested buyer. Whether that apparent undervaluation actually turns into a great buying opportunity is for the future to answer but, at the very least, shows UK companies are putting their money where their mouths are.

Sources: [1] FCA, Share Buybacks in UK Listed Equities, Multi-Firm review, August 2025 [2] Financial Times, January 2025 [3] Business Money, July 2021 [4] Yardeni forward P/Es, September 2025

Important information

When investing, your capital is at risk. The value of your investments, and the income you receive from them, can go down as well as up and you may get back less than you invest. Forecasts aren’t a reliable guide to future results or returns.

Make sure to do your own research on what investments are right for you before investing or consider seeking expert financial advice. Please note that this article is meant for information and does not constitute any financial advice. This is not an offer, recommendation, inducement or invitation to buy, sell, or hold any securities, or to engage in any investment activity or strategy.