The Buy-Back Bonanza: Are UK Shareholders Being Short Changed?
The increasing use of share buybacks by UK companies has gone largely unremarked by investors in recent times, despite their historic use being far from usual. As the UK accelerates towards share buybacks as the norm for returning capital, it seems timely to ask whether shareholders are being short changed by this form of capital deployment.
The UK market is currently experiencing what can only be called a "buyback bonanza," with companies repurchasing their own shares. By late 2025, this phenomenon reached record levels – and the trend has continued into 2026:
As of August 2026, UK companies had announced £34.6 billion worth of share buybacks, with the vast majority (£31.1 billion) originating from FTSE 100 companies1.
2025 was a standout year for UK capital returns, with share buybacks reaching £63.6 billion; this represented an historic increase; by comparison buybacks totalled £30.8 billion for the whole of 20192.
This pivot is both surprising and salutary as it comes largely without shareholders seeking capital returns in this form. As the FTSE100 becomes more global and positioned towards US markets, so their Boards appear to be gravitating more towards the US model of delivering capital returns via share buybacks. In Q3 2025 alone, US corporations bought back $249bn worth of stock, with around $1.2trn pencilled in in total3. This has long been, and remains the principal means in which US corporations make returns to shareholders – Apple Inc. for instance made capital returns of $106.1bn in 2025 of which $90.7bn was in the form of share buybacks; put another way, Apple returned $6 in buybacks for every $1 paid in dividends4. Is the UK now following suit?
There is significant evidence, at least when it comes to the FTSE100, that buybacks now represent a significant portion of total shareholder returns, often valued at a high ratio relative to every pound paid out in dividends. Essentially, for income hunters, retail and institutional, this is going to become an increasing headwind.
For mature, globally significant companies (miners, banks, pharmaceuticals, chemicals and aerospace) throwing off high volumes of free cashflow, shareholder returns mostly took the form of progressive dividends, after any retention of cash reinvested in R&D, plant, machinery, skills or expansion. This focus clearly has now changed, with buybacks seen as an alternative and efficient way to return surplus cash, alongside or instead of, dividends. Whilst dividends are simply a charge on free cashflow, share buybacks owing to dilution, support the share price even if total profit is unchanged, or market headwinds buffer the share price. Companies may also judge that, unlike dividends which are fixed once announced, buybacks offer more flexibility as they can scale up, pause, or stop, without sending as strong a negative signal as cutting or pausing dividends. Companies would also argue that purchasing shares when under-valued is an efficient means of deploying capital.
The scale of the UK bonanza nevertheless warrants asking whether shareholders are being short-changed. On the whole, small investors benefit little from buyback programmes, which in themselves are often too small to make much difference to smaller holdings. What buybacks do achieve is to flatter EPS and other per-share measures without improving the underlying business, this in turn directly benefits senior executives whose performance share plans are, to a high degree, predicated on improving EPS. Share buybacks can therefore act as a perverse incentive that rewards executives with no underlying uptick in performance.
Perhaps most startlingly, given the heavy shift towards buybacks, is how little discussion or questioning there has been on the stewardship implications for large share buyback programs. Academic literature has largely concentrated on whether buybacks deliver efficient capital allocation or reflect an extreme form of short-termism. Negative views tend to emphasise buybacks as a shift from long-term value creation (via R&D and other investment) to inflating the share price in the short-term. Surprisingly, CSR arguments have come less to the fore, and responsible investors have failed to originate a ‘theory of responsible stewardship’ as it relates specifically to share buybacks.
One may concede that in very specific circumstances, share buybacks can be an efficient device; where the share register is particularly bloated (e.g. Lloyds Banking Group) buying back shares can be a much needed ‘tidying up exercise’, and arguably fairer than the kind of share rearrangement scheme undertaken by Royal Bank of Scotland in 2012 (1 share for every 10) that boosted a heavily diluted share price. Share buybacks may also be an efficiency driver where the share price is artificially subdued and where buybacks at discounted prices makes sense.
However, if a stewardship ethic is applied, buybacks emerge, compellingly, as a form of imaginative absence, in which very large capital sums – on income earned and taxed – is then used simply to cancel shares. In addition to an immediate unearned benefit to executives, shareholders should perhaps be more questioning of buybacks, and seek far greater rigour in how excess capital is deployed or returned.
The UK has already hit an inflection point with 44% of large companies reducing their share count by at least 1% in the past year5. Dividends, in theory remain the bedrock for delivering returns, but this is now being challenged as a market norm; HSBC regularly announces $2-3bn of buybacks per tranche; Shell has consistently bought back $3.5bn of shares each quarter for 14 quarters; BP executes similar, though smaller, regular buyback tranches, and Lloyds has also entered the fray with buyback programs in the range of £1-2bn6.
That so much capital is being expended in this way, at a time of low economic growth and substantial unmet need in the economy, suggests, at best a ‘wait and see approach’, at worse, an acute disinterest in long-term value creation. More dismaying evidence for this is UK housebuilder Barratt Redrow’s surprising decision to buy back up to £500m of stock (Bellway and Berkeley Group have announced much smaller programs). Given the oft quoted housing shortage, severe unmet need and poor supply, the company’s de facto decision not to invest in land, plot development or skills points to an impoverished sense of stewardship. Whatever Barratt’s rationale, shareholders should be asking far more questions why it is better to splurge a half billion on cancelling shares rather than delivering on its core business - building homes. Without challenge the UK’s long-admired dividend culture is in danger of irreversible decline. As importantly, shareholders should be asking more probing questions on the responsible stewardship of capital and whether, ultimately, they and the economy are being short-changed by the current buy back bonanza.
Notes
6 See HSBC, Shell, BP and Lloyds Banking Group
