Last update: 28/02/2024

Listed companies reward their shareholders with a portion of their profits. Cash dividends are the most common form of this reward. But some companies' shareholder remuneration offers up an alternative: the share buyback. Here we tell you about share buybacks and their benefits. 

What is a share buyback?

A share buyback is when companies buy back their own shares from the market, cancel them and, ultimately, reduce share capital. With fewer shares in circulation, each shareholder gets both a larger stake in the company and a higher return on future dividends.

What are the benefits of a share buyback?

Here are some of the ways that buybacks work to shareholders' advantage under normal market conditions:

• First, since the company’s value remains the same but the supply of shares is lower, the share price will increase. However, that depends on market behaviour. 
• Second, the earnings per share (EPS) should increase because fewer shares are in circulation. Shareholders will have a greater stake in the company’s profits.
• Unless a shareholder chooses to offload their shares, a buyback is a tax-free transaction.

Share buybacks enable companies to raise shareholder value. Under normal market conditions, the portion of profits a company uses to buy back shares should strengthen its share price.

Imagine a listed company with 1,000 shares, and 100 (10%) of them are held by one shareholder. The company runs a share buyback programme and purchases 100 shares, reducing total share capital to 900 shares. The shareholder, whose stake has just increased from 1.11% to 11.11%, is now entitled to more of the company's profits. Also, the share price should become more attractive to investors.

Banco Santander buyback programme and payout

At our Investor Day in February 2023, we announced our goal to increase shareholder remuneration for 2023-2025 from around 40% of net profits to around 50%, split almost evenly between a cash dividend and share buybacks. 

To achieve that goal, our board will submit the following to vote at our annual general meeting (AGM) on 22 March 2024:

• A final cash dividend of 9.50 euro cents per share, to be paid in May 2024. 
• A new buyback programme for an amount of EUR 1.459 billion, which already has regulatory approval.

When the dividend is paid and the buyback programme ends, total shareholder remuneration for 2023 will be EUR 5.538 billion (some 50% of the Group’s underlying profit for 2023), split almost equally between a EUR 2.769 billion cash dividend and share buybacks worth EUR 2.769 billion.