Time for share buybacks

Profitable publicly listed companies have several ways to return excess cash to their shareholders. Dividend payments are the most common way, but a company can also choose to do a stock buyback or a share repurchase. There’s actually a growing trend among companies in developed equity markets to do stock buybacks as their most favoured form of payouts to their shareholders. The trend is also catching up in emerging markets to return money that the companies don’t need to finance their operations and investments to their shareholders through buybacks instead of dividend payments. In Pakistan, however, only a few companies like Netsol, Maple Leaf Cement, and Lucky Cement — have of late chosen this form of a payout. A stock buyback happens when a firm uses some of its excess cash to repurchase its own stock from the marketplace. Once a company carries share buybacks, the break-up value of its stock and its profits per outstanding share increase as the total number of its shares goes down.