What Does It Mean When Buybacks Are Soaring?
Buybacks of S&P 500® stocks reached an all-time high of $1 trillion1 in 2025—despite the fact that, by one measure, equities haven't been this expensive since the dot-com bubble.2
"Companies often repurchase their shares when they believe they're trading at a discount," says Adam Lynch, director of equity research at the Schwab Center for Financial Research. "However, when a stock is on a roll, a buyback can also signal that a company believes its stock will go even higher."
In any case, research from Adam and his team suggests that companies that buy back their shares tend to outperform those that don't, generating average annual returns of 10.79% versus 8.24%, respectively, over the 20-year period3 ending in 2025.
That said, investors shouldn't take it on faith that a stock buyback is always a positive indicator. For example, some companies use buybacks to increase earnings per share to make their stock appear more attractive.
"Looking at financial metrics like earnings growth and gross profit margin can give an investor a sense of whether a company is buying back its shares from a position of strength—or whether it's doing so to manipulate the numbers," Adam says.
Perhaps an even better sign of financial strength—one that indicates real optimism among company insiders—is a commitment to dividends.
"Buybacks are one-time events that don't necessarily signal strong financial health, whereas dividends are likely an ongoing commitment—and companies know the market will punish their shares if they don't follow through," Adam says.
1"S&P 500 Q3 2025 Buybacks Post Modest 6.2% Gain to $249.0 Billion After Declining 20.1% Amidst Uncertainty in Q2; Q4 2025 Expenditures Expected to Post Similar Growth, As 2025 Anticipates a Record $1 Trillion," spglobal.com, 12/18/2025.
2"Shiller PE Ratio," multpl.com, 12/19/2025.
3Russell 1000® Index. Data from 12/31/1996 through 12/31/2025.
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