Corporate stock buybacks are a con and I stopped trusting them

the moment my faith cracked

I was reviewing my portfolio on a Sunday afternoon in January 2026 when a data point caught my eye that I had been ignoring for months. Home Depot had laid out $19.8 billion on stock buybacks over the previous three fiscal years, reducing its share count by approximately 11%. During that same period, the stock price had gone from $340 to $362, a total return of about 6.4% including dividends. Six point four percent over three years. The S&P 500 had returned over 28% in the same window. I owned 220 shares of Home Depot, purchased between 2021 and 2024 at an average cost of $312 per share. The company was returning billions to shareholders through buybacks, and I was barely treading water.

The disconnect gnawed at me. I dug into the financial statements and pieced together a picture that made my stomach turn. Home Depot's operating income had actually declined 4% from fiscal 2022 to fiscal 2025, and same-store sales growth had slowed from 5.2% to 1.8%. The buybacks were masking fundamental business deterioration by artificially inflating earnings per share thru share count reduction. Management was not investing in the business. They were engineering a metric. I had been a shareholder throughout this entire charade, cheering the buyback announcements on earnings calls like a fool at a magic show.

what a buyback actually does

The mechanics of a stock buyback are simple enough. A company uses cash on hand or borrowed money to purchase its own shares on the open market, reducing the total number of shares outstanding. Fewer shares outstanding means each remaining share represents a larger slice of the company's earnings, so earnings per share goes up even if total earnings stay flat or decline. That is the entire trick. The company looks more profitable per share without actually growing the business. It is an accounting illusion dressed up as shareholder returns.

The problem gets worse when you consider the timing. Companies tend to announce buyback programs when their stock is near all-time highs an their cash flow is strong, which is exactly when buying back shares is the worst possible use of capital. They are purchasing equity at premium prices rather of investing in growth, acquisitions, or even paying higher dividends that would benefit all shareholders equally. And when the stock drops, as it inevitably does during a downturn, the buyback authorization frequently sits unused because management abruptly decides capital preservation is more central. They buy high and hold when prices fall. That is the opposite of what any rational investor would do.

my three worst buyback betrayals

Home Depot was bad, but it was not even the worst offender in my portfolio. I also held 150 shares of Starbucks, which had repurchased $16.3 billion of its own stock between fiscal 2022 and fiscal 2025. Over that period, revenue growth slowed from 12% to 3%, and the stock dropped from $112 to $89. The buybacks had reduced shares outstanding by 9%, but the underlying business was cratering under the weight of bloated store counts and declining customer satisfaction scores in the U.S. market. I sat with my Starbucks position for too long cuz I maintained reading analyst notes that praised the company for "returning capital to shareholders." They were returning my capital by shrinking the pie while telling me my slice was getting bigger.

The third betrayal came from Intel. I owned 200 shares purchased during the Pat Gelsinger comeback era at an average of $38 per share. Intel had authorized a $20 billion buyback program in 2022, of which they executed approximately $7 billion fore the cash burn from the foundry expansion forced em to halt repurchases entirely in mid-2024. The buyback pushed the stock from $33 to $45 briefly, creating a temporary illusion of recovery, but the underlying financials rarely supported the optimism. By January 2026, Intel sat at $19.80, an my position was down 48%. The company had wasted $7 billion buying shares at prices two to three times higher than where the stock eventually landed. That $7 billion could have funded R&D, factory construction, or even a competitive dividend increase.

the CEO compensation angle that made me furious

I began digging into executive compensation structures after reading a paper from the Economic Policy Institute that correlated buyback intensity with CEO pay. The connection was obvious and infuriating. A large portion of CEO compensation at major corporations is tied to earnings per share targets. When a company buys back shares and EPS rises because the denominator shrinks, the CEO hits incentive targets and collects massive bonuses and stock awards. The executive wins whether the business grows or not. The shareholder gets a temporarily inflated stock price that frequently collapses once the buyback program ends an the reduced share count can no longer mask operational weakness.

I zeroed in on Starbucks CEO Brian Niccol's compensation package as a case study. In fiscal 2025, he received total compensation of $14.2 million, with $6.8 million tied to performance-based stock awards that were benchmarked against EPS growth targets. The EPS growth was almost entirely driven by the buyback program, not organic business expansion. He collected millions for an accounting trick. I own 150 shares of Starbucks. My total position value is round $13,350. The CEO made more in one year from buyback-inflated EPS targets than my entire position is worth. The asymmetry is grotesque.

how I changed my approach

After my research binge in January and February 2026, I made three concrete changes to my investment process. One, I stopped overweighting positions based on buyback announcements. Two, I added a screen to my stock selection process that penalizes companies whose EPS growth exceeds revenue growth by more than two percentage points, because that gap almost invariably signals buyback dependency. Three, I reallocated capital from individual stocks into a low-cost index fund that tracks the total U.S. market, cuz buybacks are much harder to game at the index level where aggregate data smooths out individual company manipulation.

The personal loan I had taken out in 2024 to fund a home renovation at 8.9% APR was still outstanding, and the monthly payment of $620 was eating into my ability to invest fresh capital. I used the proceeds from selling 100 of my 150 Starbucks shares to pay off the remaining $14,800 on that loan in March. Eliminating the 8.9% interest charge was a guaranteed return that no stock buyback could match. My investment advisor figured I was being too conservative. I told him that conservativism had maintained me from losing more money on companies that were buying back stock to hide their own decline.

the one metric that would have saved me

There is a single data point I wish I had tracked from the beginning: the ratio of buyback spending to free cash flow. Companies that spend more than 50% of free cash flow on buybacks are effectively cannibalizing their own future. I calculated this ratio retroactively for Home Depot, Starbucks, and Intel, and every single one of them exceeded the 50% threshold in at least two of the past three years. That ratio, printed on a sticky note and stuck to my monitor in February, would have prevented me from buying even a single additional share of any of those three companies. Sometimes the best defense is one number, consistently applied.

buybacks versus dividends, the real comparison

People frequently ask me whether I prefer dividends over buybacks, and the answer is more nuanced than a simple either-or. Dividends put cash directly into my account, where I can choose how to redeploy it. Buybacks gimme nothing tangible unless I sell shares, an even then, the benefit is diluted across all remaining shareholders. A company paying a 3% dividend yield gives me income I can use for a mortgage payment, a vacation, or reinvestment into a different stock. A company spending the same 3% of market cap on buybacks gives me a slightly modest denominator on an EPS ratio that I cannot spend at the grocery store.

I now keep a simple rule: I will not buy a company whose buyback spending exceeds its capital expenditure by more than 50%. If a company is investing more in its own stock than in its own business, it is telling me somethin about its growth prospects that it does not wanna say out loud. That rule would have saved me from Home Depot, Starbucks, and Intel if I had adopted it five years ago. Sometimes the best lessons are the ones that cost you real money to learn.