Share buybacks are often a more powerful tool for returning capital to investors than dividends. Three major U.S. companies—the Walt Disney entertainment empire, the insurance company Chubb, and the payment giant Visa—have just significantly increased their share buyback programs. What does this say about their confidence in their own businesses, where do the risks lie, and which of these actually returns the most to shareholders?

When a company generates more cash than it can meaningfully invest in its growth, it essentially has two ways to return it to shareholders. The first is a dividend; the second is a share buyback. While dividends are highly visible and regular, buybacks tend to be less conspicuous; however, they can be all the more valuable to a long-term investor. This is because they reduce the number of shares in circulation, so that each remaining share represents a slightly larger stake in the company and its future profits.

The metric that captures this effect is the…