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Stock buybacks are rising this earnings season

Stock buybacks are increasing in a sign that companies are feeling better about the trajectory of the US economy.

Companies such as Meta (META), Disney (DIS), and Uber (UBER) all announced plans to repurchase shares this earnings season. And according to data from Deutsche Bank companies are acting on these buyback authorizations, with S&P 500 members repurchasing $63 billion worth of their own stock during the first week of February, the highest single-week total for buybacks since May 2023.

Deutsche Bank director of global asset allocation and US equity strategy Parag Thatte explained to Yahoo Finance that as earnings rise, buybacks often follow suit. This happens because as earnings improve, companies' free cash flow often increases. Corporates will first spend that money on paying down debt. Then, remaining funds are often utilized for paying dividends, boosting capital expenditures to reinvest in the company, and, potentially, buying back shares.

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Stock buybacks lower the amount of total shares outstanding to the public, boosting investors' stake in the company and their share of any potential dividends. It's viewed as a positive for investors, but is often the first thing to be cut when times are tough.

This means that the return of buybacks can be seen as a sign that companies feel they're in a stronger position than the past few quarters when buybacks hit a lull. Uber CFO Prashanth Mahendra-Rajah described the launch of the company's first ever repurchasing plan as a "vote of confidence in the company’s strong financial momentum."

Disney CEO Bob Iger echoed a similar sentiment when discussing why his company boosted its dividend and announced plans to buy back shares for the first time since 2018.

"Our current position of strength, and confidence in our path ahead, already led us to pay a dividend to our shareholders last month ... As we continue to invest in our growth businesses and maintain our strong balance sheet, we also expect to prioritize dividend payments and share repurchases in the coming years," Iger said on the company's earnings call on Feb. 7.

Meta, for its part, is now planning to offer a quarterly dividend for the first time ever while also authorizing a $50 billion share repurchase program.

The buybacks are a noted shift for Meta, Disney, and Uber, which underwent layoffs over the last year and now appear more confident in where their businesses stand to start 2024.

While companies are still managing higher borrowing costs and fears of a potential recession, the increase in buybacks indicates companies think their financial positioning is rounding the corner.

"They're not yet stating that all is clear and we are maybe completely free of a slowdown," Thatte said. "But at the margin they are saying, 'Yes, we are seeing signs or things turning up.'"

FILE - In this Aug. 8, 2017, file photo, The Walt Disney Co. logo appears on a screen above the floor of the New York Stock Exchange. Disney has reached a confidentiality agreement with activist investor ValueAct Capital Management, garnering its support for the company’s board nominees as it continues to deal with a proxy battle with Nelson Peltz. The Walt Disney Co. said Wednesday, Jan. 3, 2024, that the agreement with ValueAct will allow the company to provide information to ValueAct and consult with it on strategic matters, including through meetings with its board and management. (AP Photo/Richard Drew, File)
The Walt Disney Co. logo appears on a screen above the floor of the New York Stock Exchange. (Richard Drew/AP Photo, File) (ASSOCIATED PRESS)

There's another sign of corporate confidence: Deals, another way companies spend their cash flow, have increased to start the year too.

With Capital One's (COF) $35 billion offer to buy Discover Financial Services (DFS) leading the way in deal value, dealmaking year to date is up 55% compared to the same period last year, according to data compiled by Bloomberg.

Freedom Capital Markets chief global strategist Jay Woods recently told Yahoo Finance's Julie Hyman that the increase in deals is a "confidence builder for markets."

"Rates have stabilized and have given companies more confidence to pursue deals," Woods said.

Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.

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