Why Are Dividends and Buybacks Hitting Record Highs? Corporate stock buybacks and dividends are booming, thanks to the tax cuts and low interest rates.Unfortunately, artificially low interest rates are associated with unnecessary debt and a rise of corporate debt-to-GDP since the Great Recession.
Share of S&P 1500 Companies by Returning Cash to Shareholders Strategy Most S&P 1500 companies are returning cash to shareholders through both dividends and buybacks, which can significantly boost shareholder returns. Image: Goldman Sachs Global Investment Research
Performance vs. S&P 500 by Uses of Cash U.S. companies that spend the most cash on dividends and buybacks have outperformed the S&P 500 since 1992. Image: Goldman Sachs Global Investment Research
Stocks – Cash & Equivalent and Short Term Investment FAAMG have plenty of cash, which could be used to buyback shares or boost dividend payments. Image: BofA Research Investment Committee
% of Annual U.S. Corporate Repurchase Executions November and December are good months for buyback executions, which is good news for U.S. stocks. Image: Goldman Sachs Global Investment Research
S&P 500 Payout Ratio The S&P 500 payout ratio has gradually declined over time, as S&P 500 companies turn to buybacks. Image: Goldman Sachs Global Investment Research
S&P 500 Cash Return Payout Ratios (% of Net Income) S&P 500 payout ratio is in secular decline, as S&P 500 companies shift to buybacks. Image: Goldman Sachs Global Investment Research
Does Quantitative Easing Affect Valuation? More fundamentally, low interest rates, high margins, low taxes, buybacks & free cash flow drive stocks higher. Image: Fidelity Investments
Trading Liquidity in U.S. Equities (for S&P 500) Chart suggesting that the lack of market liquidity may have exacerbated the impact of buybacks on U.S. equities. Image: Societe Generale Cross Asset Research
S&P 500 Operating EPS vs. USA National Income, Corporate Profits Thanks to buybacks, this chart clearly shows the current divergence. Is a new bubble being formed? Image: Nordea and Macrobond
S&P 500 and NIPA Corporate Profits After Tax S&P 500 rose relative to NIPA corporate profits after tax, thanks to buybacks. Image: Morgan Stanley