Whichever way you look at it, UK companies have embraced share buybacks. Annual buybacks from FTSE 100 companies have roughly tripled since 2022 totalling a cumulative £222 billion in the three years to 2025.
A study by the Financial Conduct Authority found that share buybacks represented 42% of the total capital returned by FTSE 350 companies during the three years after Covid, more than double the 20% share in the three years before the pandemic.
The data is not just of reflection of a few buybacks from, say, large oil companies but is much more broad based.
Research by Peel Hunt shows the proportion of UK companies buying back at least 1% of their shares over a rolling 12-month period rose from roughly 6% in mid-2020 to 55% at the end of 2025.
That puts the UK ahead of the US, Japan and Europe on this measure.
What is buyback yield?
Shell’s latest $3 billion share buyback is large in absolute terms, but it only represents around 1% of its roughly $300 billion market value. This is called buyback yield.
It shows how fast a company is ‘eating itself’ and the effect of share count reductions. Tobacco company Imperial Brands stands out in this regard after reducing its share count by more than 21% since 2022.
UK banks have also been aggressively buying back shares including Lloyds which has reduced its share count by around 14% over the same period.
The pace of UK buybacks does not appear to be slowing down, with 2026 buybacks totalling £55.6 billion (£53 billion from FTSE 100 companies), as markets are trading within a whisker of all-time highs.
Therefore, it seems appropriate to ask whether companies are buying back shares because they are genuinely cheap or simply because they have become a default use for any spare cash.
What is the effect of buybacks and do they always make sense?
Buying back shares and cancelling them mathematically increases earnings per share because there are fewer shares outstanding. Investors who want cash can sell shares, while those that remain increase their percentage ownership.
Some institutions and individuals may prefer buybacks over dividends for tax efficiency, while for companies, buybacks are more flexible than dividends because there isn’t necessarily the same expectation among investors they will be repeated consistently.
However, share buybacks do not change the theoretical value of a company nor its total market value. When considering share buybacks, what matters most is whether the shares are purchased at a sensible price, below theoretical or ‘intrinsic value’.
When do share buybacks destroy value?
If a share with an intrinsic value of £80 per share is purchased at £100, value is transferred from existing shareholders to those selling. Overpaying becomes riskier when share prices have been rising.
Cash used for buybacks cannot be used to fund a new warehouse or reduce debts to increase resiliency during a downturn. Therefore, the relevant comparison is not simply buyback versus a dividend, but buyback versus every other use of capital.
Investors should be wary of companies which use share buybacks to flatter growth and potentially make it easier to achieve performance targets without improving the underlying business.
Be careful not to just focus on announced buybacks and examine ‘net change in diluted shares’ which includes new shares issued for things like employee remuneration.
Finally, remember that not all buybacks are completed as intended and not all shares purchased are cancelled.
Why Next is the gold standard
Next provides clear guidance on when it will and when it won’t consider share buybacks. It explicitly stipulates an equivalent rate of return (ERR) of 8%, which it is required to meet before returning surplus cash via share buybacks. This minimum ERR hurdle is calculated by dividing forecast pre-tax profit by market value.
This works out as not buying back shares if they trade above roughly 12.5 times expected pre-tax profit. (1/8% = 12.5) The significance is not necessarily the specific 8% figure, but the discipline of setting a hurdle before spending shareholders money.
In its latest update Next increased its hurdle buyback price to £135 per share from £132 per share after increasing its profit outlook. As of August 2026, Next had purchased £335 million of shares at an average cost of £128, reducing its share count by around 2.3%.
Next’s approach means that If profits rise, the ceiling also rises, which avoids the circular argument that the shares are attractive just because management has authorised a new buyback.
Do other companies follow the same approach?
Most FTSE 350 companies use a formal Capital Allocation Framework, which treats buybacks as a flexible tactical tool rather than the rules-based approach taken by Next.
US conglomerate Berkshire Hathaway resumed share buybacks in 2026 after a two-year hiatus. Company policy is to execute buybacks when its shares are trading at a discount to CEO Greg Abel’s conservative appraisal of intrinsic value, after consultation with the board. Buffett has previously defined intrinsic value as “the discounted value of the cash that can be taken out of a business during its remaining life”.
What conclusions can we draw?
Buybacks are not inherently good or bad. A billion-pound buyback may grab headlines, but size alone says nothing about whether shareholders are getting a good deal.
The real questions are how much of the company’s shares are being cancelled, what price management is paying and whether the cash could earn a better return elsewhere.
As share prices rise, that discipline becomes more important. Next’s explicit hurdle is a reminder that companies should treat their own shares like any other investment: buy when the prospective return is attractive and walk away when the price is too high.
Martin Gamble: Shares and Markets Writer
Martin Gamble is Shares and Markets writer at AJ Bell. He was previously the Education Editor of Shares Magazine. He has been with the business since 2019.
Martin graduated from the University of Kent in...