5 Reasons to Consider a Stock Buyback

Are you thinking about buying back some of your business’s stock from shareholders? Known as a stock buyback, it’s a common financial strategy used by countless businesses. Whether your business is private or publically traded, it probably has shareholders. With a stock buyback, you can reclaim some of these shares. Stock buybacks offer several benefits, some of which include the following.

5 Reasons to Consider a Stock Buyback

#1) Instills Confidence in Shareholders

A stock buyback will instill confidence in your business’s existing shareholders. Many businesses experience a noticeable and positive increase in their share price after executing a stock buyback. It shows existing shareholders that your business isn’t planning an offering or any other form of dilution. As a result, the share price may increase following a stock buyback.

#2) Protect Against Hostile Takeovers

Another reason to consider a stock buyback is to protect against hostile takeovers. Hostile takeovers involve another business buying a majority stake in your business. Private businesses generally don’t need to worry about hostile takeovers. For publically traded businesses, on the other hand, hostile takeovers are relatively common. Another business could buy a majority stake in your business, thus granting it voting rights. You can protect your business from hostile takeovers by executing a stock buyback.

#3) Higher Dividend Payments

Want to increase your business’s dividend payments without actually paying shareholders more money out of your business’s profits? If so, you may want to consider a stock buyback. Dividend payments typically consist of a percentage of a business’s profits. A stock buyback can increase your business’s dividend payments by creating fewer shareholders to whom you are required to pay a dividend.

#4) Ownership Consolidation

Ownership consolidation is a benefit of a stock buyback. Shareholders, of course, are owners. Shares aren’t just certificates that reflect a specific market value; they indicate ownership. You can consolidate ownership in your business by executing a stock buyback. Stock buybacks offer ownership consolidation such as this. The more shares you buy back, the fewer shareholders or “owners” there will be.

#5) Take Advantage of Unused Cash

A stock buyback allows you to take advantage of your business’s unused cash. After your business has become profitable, it may have excess cash on hand. Rather than allowing this unused cash to sit in a savings account where it generates little or no interest, you can use it to buy back some of your business’s shares.

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