Share Buybacks: An Efficient Return on Investment Strategy

Investors typically focus on two primary methods to generate returns in the Stock market: buying low and selling high, and receiving dividend payouts. However, there exists a third, more efficient approach for management to reward shareholders.

The efficiency of buybacks surpasses that of dividends for a significant reason. Dividends are paid from a company’s free cash flow, which is the cash left after operational expenses and capital expenditures. This means that dividends come from capital that has already been taxed. Consequently, investors face double taxation on these payments, making dividends less attractive.

A more advantageous method for rewarding shareholders is to use free cash flow for stock buybacks. By doing so, companies retain capital for reinvesting in growth and enhancing efficiencies, creating compounding benefits for investors. For instance, Barrick Gold Corp. (NYSE: GOLD), Lyft Inc. (NASDAQ: LYFT), and Tractor Supply (NASDAQ: TSCO) are all currently taking advantage of this strategy.

Barrick Gold’s Strategic Buyback Initiative

In February 2025, Barrick Gold’s management announced a new buyback initiative amounting to $1 billion, representing about 3.2% of the company’s market capitalization. When a company’s insiders aggressively pursue a Stock buyback, it often signals two key points for investors.

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Firstly, insiders believe the Stock is undervalued at its current levels. Secondly, they anticipate that the company’s financial performance will continue to be strong, if not improve further.

Given the significant price surge in gold recently, it is reasonable for investors to expect that Barrick Gold’s margins and earnings per share (EPS) might increase substantially, enhancing the Stock‘s valuation.

This context might explain why analysts at Raymond James reiterated their outperform target for Barrick Gold, now estimating its stock value could reach as high as $24 per share. Such a target would mean a new 52-week high and an anticipated upside of approximately 30% from current prices.

Lyft’s Buyback Signals Bullish Shift

In a recent development, Lyft experienced a notable decline in short interest, with 13.3% of its Stock being covered. This reduction indicates a bearish capitulation as short sellers react to the company’s growth momentum in the ridesharing sector.

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In February 2025, Lyft’s management announced an aggressive buyback plan worth up to $500 million, targeting about 9.3% of the company’s market capitalization. This move, similar to Barrick Gold’s, suggests robust investor confidence.

Lyft’s financials exhibit a gross margin rate of 35.3% over the past year, which allows the company to retain more capital from its sales. Insider commitment to the buyback, alongside reduced bearish sentiment, has attracted additional interest from other investors.

Notably, Jacobs Levy Equity Management increased their holdings in Lyft by 15.1%, raising their total investment to $120.5 million, or 2.2% of the company’s ownership. This development adds a bullish dimension for potential investors.

Tractor Supply: A Solid Compounder

Tractor Supply stands out as a strong candidate for value investors, including prominent figures like Warren Buffett, due to its ability to generate high returns on invested capital (ROIC). Recent financial reports show that the company achieved a 15% ROIC over the past year, exceeding the average expected returns from the S&P 500.

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In light of its financial strength, Tractor Supply approved a buyback program of up to $1 billion, despite the stock trading at about 90% of its 52-week high. While this stock shows bullish behavior, future price potential may be enhanced by Wall Street’s ongoing earnings per share (EPS) forecast of $1.97 for the second quarter of 2025, representing a significant increase from the current $0.44.

Given that EPS growth typically boosts Stock prices, both investors and insiders may anticipate a promising outlook for Tractor Supply.

Before executing your next trade, it is prudent to stay informed.

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The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.