Changing dynamics and the rise of UK share buybacks
With the popularity of share buybacks exploding in the UK, we explore when and why a company might choose buybacks over dividends, and what they mean for investors.
At a glance
- Share buybacks can help companies to increase the value of their remaining shares, making them more attractive to investors. Buybacks have become more popular since the Global Financial Crisis in 2008, with the US leading the way. The UK has seen a big increase in activity since COVID-19, and last year a larger proportion of large UK companies partook in share buybacks than in the US.
- Over recent decades, share buybacks have become a key instrument for companies looking to boost their value or improve their balance sheet.
- The basic concept of a buyback is relatively simple. A company will use part of its revenue or cash reserves to repurchase some of its own shares. As this reduces the number of shares available for investors to buy, the price should rise – assuming demand stays equal.
As markets generally view this action as a sign of confidence, buybacks can lift a company’s overall market capitalisation, as well as its share price.
Of course, in the real world, this equation isn’t quite so simple. Other factors can affect investor sentiment, and no amount of buyback activity will keep share prices high if the company is financially struggling or falling behind its competitors.
Still, over time there is evidence that share buybacks can help preserve or even increase shareholder returns. In fact, according to market research company BCA Research, buybacks are one of the biggest long-term drivers of equity returns1.
The post-COVID-19 UK surge
Historically, the UK market has been known for favouring dividends over buybacks. The FTSE 100 has a greater exposure to defensive sectors, such as consumer staples, healthcare or utilities, compared to other regions. These sectors tend to pay more dividends but commit less revenue to buybacks.
According to Carlota Estragues Lopez, Equity Strategist at SJP: "Dividends are typically more appealing to investors seeking stable income. They are more common in defensive sectors, which tend to have lower cyclical revenues and more predictable cash flows. Because these businesses can be less sensitive to economic downturns, they are often better positioned to sustain and grow dividends over time."
Since COVID-19, however, there has been a notable increase in the number of buybacks in the UK. In fact, the UK has recently become the buyback capital of the developed world. This is in terms of the percentage of large companies in the UK carrying out share buybacks comparative to other large economies.
Carlota says this can be at least partly explained by the shifting geopolitical environment. Post Brexit, the UK market struggled with uncertainty for some time. This suppressed valuations and made the UK an unloved asset class. But while the UK economy is still experiencing weak growth, the FTSE 100 has become more appealing to investors over the past 18 months. As the market is beginning to recover, share buybacks are one of the tools that managers have increasingly started calling upon to help revive the UK stock market.
Historical power of the US
Prior to 2024, the US led the way in buybacks. And while a higher proportion of large UK companies carried out buybacks in 2024, the US still dwarfed other economies in terms of total amount spent.
Last year, companies in the S&P 500 spent over $940 billion on buybacks, approaching the record $1 trillion spent in 20222. To put those numbers into perspective, the FTSE 100’s combined market cap was just north of £2 trillion at the end of May 2025.
Apple has been the most notable example, committing hundreds of billions of dollars to buybacks over the past decade. At the start of 2015, there were well over 23,000 Apple shares in circulation. Today, that number stands closer to 15,000. Over the same period, the company’s share price has leapt from around $30 to approximately $200 (at the time of writing).
There are a range of reasons for the US’s historic lead, but it can again be partly explained by the sector composition of its market.
In recent years, the US has been increasingly dominated by a relatively small number of large technology companies. Technology and other cyclical sectors (those that tend to follow the peaks and troughs of the wider economy) typically contain companies that perform share buybacks and reinvest earnings into expansion and research and development (R&D), rather than paying dividends.
Carlota notes: "Technology companies are often more prone to share buybacks because they can generate significant free cash flow, have lower capital intensity, and don’t need to reserve as much capital for physical assets. After reinvesting in growth areas like R&D or acquisitions, excess cash can often be returned to shareholders via buybacks, which are seen as a flexible way to deploy capital without committing to permanent dividends."
How we look at share buybacks
When developing a view on a sector or market, buybacks are one factor to consider. But they should not be looked at in isolation, says Carlota.
“An active manager will assess the health of the balance sheet and ensure there’s a sufficient cash buffer to support it.”
There is also a risk that buybacks could be used to artificially increase the price of shares. Therefore, buybacks always need to be paired with strong fundamentals. When active managers look at buybacks, they look at them in combination with the strength of a company’s financials – cash flow, income statements and balance sheet.
In other words, is this company in a solid position to return capital to shareholders?
Sources
1. BCA Research, May 2025
2. S&P Global, March 2025
SJP Approved 07/07/2025
