What it is
Dollars spent on buybacks divided by market cap, expressed as a percentage. A 5% buyback yield means: for every $100 of stock outstanding, $5 worth is being repurchased and retired this year, leaving you with proportionally more of the business each year.Why Buffett loves it
Buffett: "When companies with outstanding businesses and comfortable financial positions find their shares selling far below intrinsic value in the marketplace, no alternative action can benefit shareholders as surely as repurchases."A share buyback is mechanically equivalent to a tax-efficient dividend: instead of distributing cash (taxed at ordinary income or qualified-dividend rates), the company shrinks the share count, increasing your % ownership and per-share earnings.
When buybacks are good vs bad
Good: company buys back shares when they trade below intrinsic value. Retiring cheap shares concentrates value for remaining holders.Bad: company buys back shares at any price, including when they're overvalued. This destroys shareholder value - you'd rather have the cash dividend than have management waste it on overpriced stock.
Look at the price-to-buyback history. The best capital allocators (Singleton at Teledyne, Buffett, Mark Leonard at Constellation) bought back aggressively only when shares were cheap and stopped completely when expensive.