Here’s what a big increase in free cash flow will get you: a lot of share repurchases. Chevron is the talk of Wall Street and Washington this morning because of its massive share repurchase program — $75 billion — announced late Wednesday. With a market cap of $346 billion, a $75 billion buyback is about 20% of the shares outstanding. That is a big buyback. Chevron is not alone, of course. Exxon Mobil also has a $50 billion buyback plan, for example. But it highlights the growing popularity of buybacks versus the traditional dividend boost. It also attracts the ire of Washington. “For a company that claimed not too long ago that it was ‘working hard’ to increase oil production, handing out $75 billion to executives and wealthy shareholders sure is an odd way to show it,” one White House official told our Kayla Tausche. “We continue to call on oil companies to use their record profits to increase supply, and reduce costs for the American people.” Wall Street loves buybacks Buybacks have become an important part of returning shareholder profits. Last year, about $560 billion in dividends were paid to shareholders in the S & P 500 , (about a 10% increase from the prior year). Buybacks were bigger: about $980 billion, according to estimates provided by S & P Global. “Wall Street loves buybacks for two reasons,” Howard Silverblatt, senior index analyst, product management for S & P Dow Jones Indices, told me. “First, buybacks provide immediate gratification because the company is buying back shares in the open market. Second, buybacks can be immediately adjusted lower if there is lower cash flow. Dividends are tougher to claw back if cash flows decline.” The problem with buybacks The purpose of a buyback is to reduce the share count, which then improves the earnings per share outlook. The problem with the buyback game is that many companies that buy back stock do not see much of a share count reduction because they issue new stock on the other end. Chevron, for example, repurchased 24.3 million shares in the quarter ending in September, about 1.26% of the shares outstanding at that time (Chevron has about 1.93 billion shares outstanding), according to Refinitiv data. However, it issued 7.2 million shares on the other end, so the total change in diluted shares was only 17.1 million. Chevron’s shares outstanding have remained near 1.93 billion shares for the past two years. This is true for the S & P 500. In the third quarter of 2022, for example, companies in the S & P 500 spent $211 billion to buy back stock, but the share count of the S & P 500 went up, not down. There were 334 billion shares outstanding in the S & P 500 in the third quarter, compared to 308 billion the prior year. Some of this is due to stock splits from Amazon and Tesla , but even taking that into account, the share count was higher. “While many companies tout their share buyback programs, on the aggregate share counts keep increasing because corporations give out options to management and because of M & A activity,” Silverblatt said. Some companies really do reduce share counts In the third quarter of last year, 21% of companies decreased their share count by at least 4%. Here’s a list of larger companies that had significant share count reduction in Q3, the last quarter with complete data. Notice that energy and banks were buying back a lot of stock and reducing share count at the same time. Third-quarter buyback monsters (% of share count reduction) MGM 18.8% Marathon Petroleum 22.0% eBay 16.7% Marathon Oil 14.8% Etsy 14.3% Bath & Body Works 14.2% Tapestry 13.5% AIG 10.8% AutoZone 9.1% Wells Fargo 6.5% Discover Financial 8.0% Morgan Stanley 6.3% Lennar 6.2% Darden 5.9% Apple 3.1%