Dilution

Dilution is the percentage increase in diluted share count over time, typically driven by stock-based compensation vesting, secondary offerings, or M&A using stock as currency. A company growing diluted shares 3% per year while reporting 8% EPS growth is delivering only 5% per-share value creation, the rest being absorbed by new share issuance. We track multi-year dilution trends as a discipline check on capital allocation: a steadily rising share count without commensurate revenue or earnings acceleration is the unmistakable signature of equity-funded growth that is dilutive to existing shareholders. The cleanest counter-balance is a buyback program that retires shares faster than SBC vesting and M&A issuance create them, producing a net negative dilution rate (net buyback). For high-SBC software businesses, the gap between gross buybacks and net dilution is often large — a 4% gross-buyback yield can net out to 1% net dilution when SBC offsets are included.