European Stock Buybacks Soar to €182 Billion—But Are Investors Missing a Major Warning Sign?

In a significant shift, European companies have increasingly turned to share buybacks as a strategy for rewarding shareholders, echoing a practice long embraced in the United States. In 2025, they purchased back a staggering EUR 182 billion worth of shares—more than double the amount recorded a decade ago. However, the growth in buybacks has slowed considerably over the past three years.

Historically, buybacks have been a hallmark of American corporate strategy, but their rising popularity in Europe marks a notable change in investor relations. In fact, around 44% of listed European companies initiated share buybacks in 2025, the second-highest figure in a decade, just behind 2024. Leading the charge was Switzerland’s Novartis, which executed the largest buyback of the year.

This trend gained momentum following the pandemic, when many cash-rich companies, particularly in the banking sector, were finally allowed to return excess capital to shareholders through buybacks or dividends. Notably, German software giant SAP announced a EUR 10 billion buyback program in its recent earnings report, highlighting the growing acceptance and scale of this practice in Europe.

Despite the rush to repurchase shares, buybacks remain a contentious issue among investors. While some argue that dividends or increased capital investments are more beneficial, evidence suggests that companies engaging in buybacks have outperformed their peers overall. For instance, while 2022 saw a record-breaking EUR 219 billion in European buybacks, the latest figures for 2025 indicate a drop compared to the prior year, largely attributed to a 50% increase in stock prices in the past three years.

The Yield on Buybacks

The average buyback yield in Europe for 2025 stands at 1.1%, a measure that indicates the value returned to shareholders through stock repurchases relative to market capitalization. However, some companies have managed to achieve yields above 5%. Leading the pack is Norway’s Equinor, boasting a buyback yield exceeding 10%, while Novartis followed closely with over EUR 9.7 billion in shares repurchased.

It's important to understand that the buyback yield is calculated by dividing the market value of repurchased shares by the company's total market cap. This metric, alongside dividend yield, allows investors to gauge total shareholder returns. However, this yield has been on a downward trend, peaking at 1.84% in 2022.

European banks, in particular, have been active participants in share buybacks. Their stock prices have surged, which explains the strong performance of indices that focus on companies engaging in this practice. Since 2021, the MSCI Buyback Yield Index has consistently outperformed the Morningstar Europe Index, indicating that buyback strategies may be yielding positive returns for shareholders.

Why the Shift Toward Buybacks?

The historical preference for dividends in Europe contrasts sharply with the U.S., where buybacks are more common due to favorable regulatory and tax frameworks. In Europe, a buyback must be approved at a general meeting, and there are specific volume and price restrictions designed to prevent market manipulation. These regulatory hurdles have made European companies more cautious in their buyback strategies.

That said, the surge in buybacks during 2022 can largely be traced to the liquidity many European companies amassed during the pandemic, as operational restrictions hindered investment spending. As economic conditions normalized, these companies were eager to return capital to shareholders through both dividends and buybacks, particularly banks that had faced years of regulatory limitations.

Companies often view buybacks as a strategic form of capital allocation. When they have excess cash not earmarked for reinvestments or acquisitions, they can choose to either pay dividends or repurchase shares. Buybacks can be more flexible, allowing companies to avoid commitments to recurring dividend payments. Furthermore, reducing the number of outstanding shares can artificially inflate earnings per share, as net profits are now divided among fewer shares, potentially supporting stock prices over time.

However, there are criticisms surrounding buybacks. If executed when shares are overpriced, or at the expense of profitable reinvestments, buybacks may inflate per-share metrics without adding long-term operational value. As expressed in a June 2025 report by asset manager Amundi, the structure of executive compensation—often heavily tied to stock performance—may incentivize a focus on short-term share prices rather than sustainable growth.

In summary, while the practice of share buybacks is gaining traction in Europe, it is a complex issue that holds both promise and potential pitfalls for investors. As European companies adapt to this strategy, the long-term impacts on shareholder value and corporate health will continue to unfold.