I have read many financial analysis articles that seem to calculate a company's payouts to its shareholders like this:
total payout = cash dividends + share repurchases
I can easily see why a cash dividend is a payout — I receive cash from the company. But how are share repurchases considered payouts? When a company repurchases shares, I do not seem to receive anything, so why is it a payout?
A buyback is a payout to some shareholders, namely those who sell their shares as part of the buyback (this is totally opaque, though, as one does not ever know who they are selling to). If there was little demand at the buyback price, the company would have to buy at a higher price to meet demand, hence the price would rise to meet demand, affecting all shareholders indirectly. In other words, it increases demand, which increases the stock price relative to the price if they did not do a buyback,
So from the individual investor's standpoint a buyback is not a clear benefit, but from the company's standpoint it is cash out the door that goes to (some) shareholders, hence a payout.
If the company buys shares back, the remaining shares own more of the company. For example you have X shares of a company, each representing 1/X ownership stake. Now the company went and bought back 10% of shares, so now you only have 0.9X shares outstanding, each representing 1/(0.9X) ownership stake. In essence every remaining shareholder now owns 11% more (1/0.9=1.11...) of the company than before the buyout. Hence - payout to shareholders.
Part of the reason that buybacks are referred to as shareholder payouts, is the common context of such buybacks happening after government subsidies. See here an article discussing this occurrence: https://financialpost.com/investing/share-buyback-binge-on-hold-as-companies-line-up-for-covid-19-relief
In short, one method of supporting the economy through hard times, is for a government to provide funds to businesses [other common alternatives would be providing direct taxpayer relief, or increasing funding to government projects, etc]. The general theory behind this is that if the market is competitive, then perhaps jobs are best provided by independent businesses. Therefore, to keep the unemployment rate low while avoiding 'government inefficiency', businesses are provided funds [perhaps grants, perhaps low-interest loans] that in theory allow them to stay open, thus avoiding layoffs and maintaining steady paycheques.
The problem with share buybacks, is that if a business receives a government grant, that is only economically 'efficient' [even in theory, which I will not get into here] if that business reinvests it in its operations [building new locations, hiring new workforce, investing in operations, etc.]. Without the government grant in the first place, the argument is that the business itself would have lost value, so buying back shares at its old value is basically a government grant that ends up in the hands of shareholders [whether they accepted the buyback offer or not], rather than in the pockets of employees.
In that context, this is a payout to shareholders at the expense of government.
