A share buy-back is the purchase by a company of its own shares in the market. These shares are usually then cancelled.
The advantage of buy-backs is that, by boosting the share price, they give shareholders capital gains rather than income.
Some companies buy back a small number of shares every year. This is an alternative to increasing the dividend. It also does not commit the company to sustaining the payment in the same way the increasing the dividend would and, again, turns the return into a capital gain rather than income.
Another advantage of a share buy-back is that it gives shareholders more flexibility than a dividend as it allows shareholders to choose when, and if, to sell and realise their cash. This can also help minimise tax.
Shareholders can even, by selling the correct proportion of their holding, get exactly the same amount of cash out of the company as would have been paid if a dividend had been paid instead — however the money may be taxed differently and doing this involves paying broker’s commissions and other expenses of trading.