The purpose of a stock buyback is to increase the shares value. This allows investors to choose to realize profits, but this is not a "pump and dump" because having less outstanding shares fundamentally drives the price up. There is nothing wrong with stock buybacks.
The reason this is often done instead of a special dividend is that dividends create an immediate taxable event for all investors, which is considered less flexible than the capital gains tax associated with a stock buyback.
Besides the tax treatment difference, it's mostly a signalling/communication choice: share buybacks increase EPS which is a nice story, whereas dividends signal reliable profits.
I respectfully disagree. I think that stock buybacks distort the market and dividends don't. If our markets could be either based on A: a nice story or B: reliable profits, the choice for stability and growth is bright and clear.
The reason this is often done instead of a special dividend is that dividends create an immediate taxable event for all investors, which is considered less flexible than the capital gains tax associated with a stock buyback.
Besides the tax treatment difference, it's mostly a signalling/communication choice: share buybacks increase EPS which is a nice story, whereas dividends signal reliable profits.