Share buyback plans do not give cash back to the investors.

It does three things.

1. Creates a temporary imbalance in buy/sell activity which can contribute momentum. This is useful for people who are trading the stock (i.e. sucking blood out of the market and providing no benefit to anyone except themselves). This does not help owners of the stock in any way except for the happy moment they get to count their artificial paper profits.

2. The assets of the company are split among fewer owners since there is less stock. So is the debt. Most companies do not trade strictly on the value of their assets though but on future predicted performance of the business. If the company has positive and growing assets though, owning a greater percentage is beneficial. However, the company used your cash that you own as a partial owner of the company to buy back stock from the market. So though you own a greater percentage of the company now, you just threw away your own cash buying it. It is no different from them giving a dividend to you which you use to buy more stock of the company, except it is more tax efficient. Nets out kind of neutrally.

3. If the company is paying a dividend, your dividend just went up. So buybacks are pretty nice when you own shares in a company paying a dividend.

With no dividend, stock buybacks are pretty moot because the stock is going to fluctuate down the road anyway and so unless you're trying to time a sale and get out, really has no substantial benefit to you as a buy-and-hold owner.

It is great for everyone making fees, or for executives who are getting paid with stock options though as the company issues them new shares increasing the float, then the company buys back the shares in the market at a temporarily inflated value due to their own buying activity and the executives make out like bandits.

Otherwise, the way to reward owners of the company is by paying and increasing a dividend first. Secondly, after establishing a dividend, you can play with stock buybacks.

Lastly, the *only* reason to own a stock is the dividend or the potential of future dividends. The *wrong* reason to own a stock is "because it is going up", which is the greater fool theory. You buy it because it is going up which means that you can sell it to someone else down the road for more than what you paid.

If that is the only reason, then it is no different from a tulip bulb or a bottle cap. If the stock will never pay you, you are waiting for the greater fool to come along and buy it from you for more. In practice, there are a lot of greater fools, but it makes for high risk to depend on this route. The general idea remains that fast growing unprofitable companies with great products will eventually become slow growing stable businesses with steady profits. Buying it now while it is cheap and growing will look really great in 15 years when it is paying out a dividend.

This is kind of boring though. People instead buy into the myth of the forever spiraling up stock, where everyone has paper profits, never sells, and there is always a greater fool waiting to buy their worthless chunk of nothing for much more than they paid and this cycle can somehow never fail.