Oh boy. This fills me with dread. I've never seen a company that starts doing buybacks not become a financialized hollow shell within a decade. Being an irreplaceable monopoly on the commanding heights of the digital economy makes this even worse.
ASML is a fairly old company (40+ years), and they have been doing share buybacks since 2006: https://www.asml.com/en/investors/why-invest-in-asml/share-b...
These are things that don't show in a spreadsheet unless you're explicitly incentivized to look at them. But that's never the case because the number of KPIs is always finite while there are infinitely many aspects that could potentially be subverted.
Then over the span of a few decades, what’s left is a shallow organization without real innovation.
Intel and Boeing are good examples of this.
Then again, this has been going on for decades. Businesses used to be about being the best for your customers and personnel. But it's all become about sticking it to everyone for the benefit of the shareholders.
Dividends have only existed since the 1960s and stock buybacks only became mainstream in the 1980s. Stocks have existed in some form since the 1600s.
very common: a small company with a couple shareholders of that aren't employees
without dividends, how can the shareholders get THEIR profits out of THEIR company, without giving up control?
just leave them in there forever?
There will never be an increase in the value of the stock if there is no expected return.
If you go back to the 1600's then shareholders got their return from liquidation payouts. Someone would invest in a voyage and when the ship returned the spoils were the paid out and the company was liquidated. Not so different from a dividend really and it clearly wouldn't work for a modern industrial economy.
I've never seen a company that ...
Example: Alphabet has started share buybacks in 2015 and increased those every year. $70B in 2025 alone. And they are firing on all cylinders product-wise.
And on the side they built the best AI and the best autonomous ride service.
Not bad for a "hollow shell" of a company.
And both products are arguably worse than they were ten years ago.
Sure Android might be worse from a pure Linux perspective, but what shareholder has ever cared about that.
They lost battle for office software, they can't even exist in chat space, despise trying to make chat that sticks for 2 decades now, they squandered on video chat space and office space too.
IF Alphabet was actually efficient they should own office space, but 365 ate their office productivity and even the utter turd that is MS teams is beating them out on chat.
Even their search gets worse and only places where they actually have progress is AI.
"became monopolistic entities."
They definitely have embarrassing failures (chat especially), and some are not as successful as you'd expect them to be (Gsuite, GCP). But overall I'd say they are doing pretty damn well.
Compare to Amazon for example. They've only ever had two really successful products: shopping and AWS. Alexa could have been too if they hadn't spent a gazillion dollars trying to monetise it.
Or Facebook. They've only ever had one successful product - the rest they bought after they were already successes.
> Search, Android, Chrome, Chromebooks, Maps, Gmail, Youtube, Gemini.
There is a single thing there that's not at least 10+ years old. And Search if anything is getting worse
AWS is not "a product", it's a suite of hundreds of different ones. You're also forgetting Kindles which are fairly popular.
Dividends are totally fine (from my perspective), while. buybacks are problematic from a place where executives are bonused on share price and earnings per share, both of which can be manipulated by buybacks.
More philosophically, I think that dividends are better for society as they allow investors to realise a stream of value from well run companies rather than needing to sell their share to acquire this value.
This is obviously just my opinion though, I don't know if it matches to what the OP cares about.
Buybacks for manipulating share prices and earnings per share are indeed silly. But they should also be trivial to compensate for by normalising on market cap instead of a single share.
FWIW, companies are now opting for buybacks because it is more "tax efficient".
Stockholders have to pay taxes on dividends (immediately) but only pay capital gains on share price increases and only when they sell.
The only good reason to pay out dividends instead of announcing buybacks is a view that your shares are overpriced. Then you can't buy them back without facing a potential lawsuit (you are making a company buy something you know is overvalued).
Are you? Sorry, "tax efficiency" or what the euphemism is that tries to hide whats actually going on. :)
It's definitely a change in behaviour induced by taxation.
Another example in Germany both capital gains and dividends are taxed. Capital gains are (mostly) only taxed when you sell, dividends are taxed straight away. But each year you can get a small amount of dividends tax free. So it's tax efficient to structure your capital returns to first max out that tax free allowance, and take the rest as capital gains.
That's annoying and complicated.
Singapore is simpler and has lower taxes, so I don't bother optimising anything, and just let my decision be guided by whatever makes financial sense, without worrying about taxes. (In my case, I'm investing in accumulating funds that just never pay any dividends, but instead re-invest them straight away. That way I don't have to worry about re-investing dividends manually.)
Another example: when you have a carbon tax one of the intended consequences is for companies and people to change their affairs such that they emit less CO2, thus optimising their tax bill. The system only works when people 'avoid paying their share'.
So I don't think it's going to be executed at the absolute peak. But it does imply that the finance people in ASML believe that the stock is undervalued even if the market as a whole is at all time highs.
1. From the perspective of shareholders, and for the moment ignoring taxes, buybacks and dividends are exactly economically equivalent. If a dividend happens, you get some cash. If a buyback happens, the value of your shares goes up. Crucially, the amount by which each share's price goes up is equal to what the per-share dividend would have been. It's a useful exercise to work this out and convince yourself that it's true.
2. Now let's stop ignoring taxes. If a dividend happens, you get taxed that year. If the value of your shares goes up, you don't get taxed that year. Instead, you get taxed whenever you sell, which might be later when you retire and are in a lower tax bracket, or after a period of some years when you get a lower capital gains tax rate.
3. Now let's think about the effect of dividends vs buybacks on the allocation of your portfolio as a shareholder. Neither changes the total value of your portfolio -- that was point number 1, plus just plain old conservation of dollars, modulo taxes -- but a dividend increases the proportion of your investment that's in cash, while a buyback keeps it constant. Let's say you auto-invest all dividends in the S&P 500 or equivalent index fund. Then dividends reduce your ownership stake in the company, while buybacks keep it constant.
For these reasons, most investors prefer (or ought to prefer) buybacks: they have the same economic effect as dividends but allow you to defer taxes to whenever is optimal for you. Also, and this is a smaller point, if a company does a dividend then you have to actively do something (that is, buy stock) in order to maintain the same proportion of your portfolio in that company. In other words, if you want 10% of your savings to be in X, and they do a dividend, then you have to take the cash and buy shares of X. The reason this is a smaller point is that at least in theory you can get your brokerage to do this for you automatically.
There are some nuances where point number 1 fails to hold: signaling, bad execution of the buybacks, and principal-agent conflicts. The big example of that final point is executive compensation tied to specific share prices. I'm not an expert in this area so I don't know, off the top of my head, if there's real evidence either way that this effect is very large, but it's one that people will bring up so everyone who thinks about this ought to know about it.
Wouldn't the inverse of this be true in buybacks though? If it's economically equivalent then buyback should increase the price and similarly increase the proportion of X in your portfolio - which would force you to rebalance (might have tax implications).
Generally agree with the main point.
If a buyback happens, the market capitalisation drops by the amount of the buyback, and the number of shares drops by the same ratio, keeping the share price initially constant. The money goes to the investors who sell.
Buybacks are nevertheless good for investors who hold. They now have shares in a company whose market cap is 100% growing enterprise, instead of 90% enterprise and 10% bag of money. That means that if the company keeps doing well, the share price will increase faster than it would have done otherwise (it will also drop faster - it's no longer anchored to an inert pile of cash).
The investors who sell are wealthier by amount $X because now they have fewer shares and more dollars.
The investors who don't sell are wealthier by the same amount $X because the shares they kept are worth more, because prices go up.
> keeping the share price initially constant. This statement is definitely incorrect, unless you're being very technicaly and pedantic about "initially". You can think about it theoretically or you can look at empirical evidence. It is well-supported empirically that share prices go up after buybacks, and in fact they do so quantitatively by exactly the amount necessary for the equation implied above to hold.
The equations are: nr_shares * share_price = cash_of_company + value_of_company_excluding_cash.
In a buyback, cash_of_company decreases by the buyback, and nr_shares decreases by buyback / share_price.
Consider the extreme case, a lemonade stand with a bank account with $1M. 1000 shares outstanding, share price $1000. After a buyback of $900K is announced, 900 shares are sold for $1000. $100K remains in the company's bank account, 100 shares remain outstanding, at ... $1000 per share.
This is actually not true in the Netherlands, which taxes unrealized gains on wealth. Quite unique. But NL also features a dividend tax, which politicians tried to get rid off but didn't succeed because it was such an unpopular plan.
With different consequences and historical outcomes to more commonly used mechanisms.
> Do you invest in companies that don't distribute profits
Does every company that distributes profits do so with buybacks?
> does this get you some kind of higher return?
Do all companies payout the same ratio of market cap as dividend?
I think there's zero point to having a monopoly if you don't distribute the profits.
If you have some argument that dividends are better than buybacks I don't care.
All ASML is doing is raising the share price. The investors that don't want a better deal somewhere else don't have to do a thing - they just have to not sell their shares. ASML is not deciding anything or signaling anything about future returns.
The market is the one sending the signal that there are better deals elsewhere. You can go from $5B to $500B. You can't go from $500B to $50T. There is no amount of R&D that will do that. If you picked a $5-6 billion company in 2008, and it was ASML, congratulations you now have >100x returns.
The inflection point isn't a point where buybacks increase, it's the slow/fast ride up to $500 billion.
The investors chasing 100x returns have already left. Whether the company buys its own shares or sits on its own cash, the net equity value is the same. The only signal it gives to investors is that they have more cash than they want to spend.
ASML's bet paid off and for now at least their business is very sustainable.
And ASML has been paying out a dividend for a long time.