Share buybacks: a tax-advantageous option

I've always liked companies that repurchase shares because it's a fantastic way to increase earnings per share. If you combine it with dividends, it becomes a virtuous cycle. But the most important thing about share buybacks is that they're a great way to optimize your tax situation, since shareholders can sell their shares at their own pace.

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You also have the option of using them as collateral for a loan. That way, you don't pay any taxes, and the collateral appreciates over time, which makes the loan costs very low. This is what high-net-worth individuals do; you and I are a long way from being able to do that. At least I certainly am.

But you also have to be careful about how some companies use them. There are two practices I don't like regarding some buybacks. The first is using them as cash reserves; that doesn't make sense to me. If you buy them, you're burning through them. The second is using them to reward top executives. This is doubly detrimental: if they sell them, it's just a foolish waste of company money, and if they keep them, they gain power that can harm shareholders' rights. So, not all share buybacks are created equal.
Furthermore, the company must increase its earnings per share; otherwise, the buyback will also be pointless.

Disclaimer.

This is not a purchase recommendation. I am not a regulated financial analyst. Under no circumstances should this information be construed as a recommendation to buy, sell, or hold a position.
You should be aware of the risks involved in investing and conduct your due research.
The information described here may not be accurate or may change at any time, so you should always check it.