Stock Dividends and Buybacks–a Strong 1-Trillion-Dollar Force Driving Markets Higher

Are Stock Dividends and Buybacks Driving Prices Higher?
  • Stock dividends rose slightly and buybacks fell 30 percent in 2020. 
  • This year, both may rise again. 
  • Means over 1 trillion dollar payout for investors, a yield of 3.1 percent p. a. 
  • As interest rates remain low, this may drive stock prices further. 
  • Or prevent a deeper fall.

A strong bull. Staying forever in the stock market?


Did Stock Dividends and Buybacks Collapse in the Crisis?

There are two main methods of how companies pay out part of their earnings to investors. Despite the incredible economic crisis in 2020, the dividend payments and share buybacks on the American stock market stayed on high levels. Total dividends rose slightly, and total buybacks fell approximately 30 percent.

Dividend payments are not the focus of most investors today. Many new stars like Tesla, Zoom, Nio, and other tech-stocks do not pay any dividends. Other tech-giants are in an advanced stage like Apple, paying out billions every year. Netflix is thinking about payouts. One of the good news last week was a future share repurchasing program of the streaming provider.

Dividends payments rose 0.7% to $58.28 per share from the previous record set in 2019, according to S&P Global. For 2021, analysts see dividend payments setting its 10th consecutive record year, up 4.2% over 2020. (5.9% without Tesla). Given U.S. interest rates and Treasury yields near record lows, robust dividends is another factor boosting the allure of stocks for yield-starved investors. (Reuters)

Are Stocks Too Expensive?

But dividends seem always too low if the share price tumbles. Many stocks look overvalued by fundamental indicators. Most investors think we are in bubble territory. For example, in this commentary, referring also to the dotcom-bubble:

What were investors thinking 20 years ago not only paying 10 times revenues for Sun Microsystems but also paying that ridiculous multiple for 44 other stocks in the S&P 500 Index? Nearly 60 of the S&P 500 Index components currently trade more than 10 times revenues. Greater fool theory? (, Jesse Felder)

Stock Dividends and Buybacks for 1 Trillion

The total market cap of all the S&P 500 index members was 33,388 trillion dollars at the end of 2020, by the official  fact sheet. By data of Goldman Sachs in 2020, the companies paid $508.6 billion in dividends and $524 billion in stock buybacks. Altogether, 1032.6 billion, or 1.03 trillion. That means approximately 3.1 percent of the market capitalization. It is like a 3.1 percent investment return p. a.

The ETF of the S&P 500 index and dividend-focused index funds, 1 year.
The ETF of the S&P 500 index and dividend-focused index funds, 1 year. S&P 500 ETF Trust (SPY), SPDR S&P Dividend ETF (SDY), iShares Trust Select Dividend ETF (DVY), iShares Trust US Dividend & Buyback ETF (DIVB), Proshares Trust S&P Dividend Aristocrats ETF (

The 10-year Treasury yield in the US reached 1.086 percent, and the 30-year one, 1.847 on Friday. But if you buy a long-term bond and hold it, your yield is fixed. Share dividends and buybacks, however, will most likely increase in the long term.

Goldman Sachs expects dividends paid out by S&P 500 companies to increase by about 5% in 2021 to $534 billion. The company says that next year should also be better for buybacks, which took an even bigger hit this year as companies tried to preserve capital. Goldman expects S&P 500 share repurchases to total $602 billion in 2021, up 15% from $524 billion this year. But still well below the 2019s level of about $750 billion. (Marketwatch)

Dividend Aristocrats Are Lagging

But dividend–, and buyback-stocks lag the S&P 500 index during the past year. As shown in the chart, the ETF following the S&P 500 index outperformed the others filled with high-dividend stocks. (Also stocks with significant share repurchase activity.) One of the main reasons is that the S&P 500 index was also driven primarily by the technology sector in 2020.

The high-dividend-paying shares, many of them “value stocks”, underperformed last year. (For example, energy companies, banks.) The big question is when the phenomenon known as rotation occurs. (A turning point in the relative performance of growth and value stocks.) When will value-stocks end the historical underperformance and outperform again?

Why Stock Dividends and Buybacks May Increase?

Inflation is coming–are warning us many analysts. Inflation expectations may be the reason for some commodity market movements. Real-assets (gold, commodities, real estate, etc.) are in high demand in the markets. Stocks are not a real asset, in theory, but can protect you from inflation, too.

The ETF of the S&P 500 index and two buyback-focused products, 1 year.
The ETF of the S&P 500 index and two buyback-focused products, 1 year. Invesco Exchange Traded Fd Tr Buyback Achievers ETF (PKW), Nasdaq Global Buyback Achievers Index (DRBG)

That does not mean stock markets can not have a steep correction or even longer decline tomorrow. But the longer bullish trend in the stock market, which began in 2009, may continue for some years. Except, if the crisis deepens unexpectedly and earnings, dividends, and share buybacks of companies vanish. But chances are economic growth comes back in the second half of 2021. As most people get immunized and governments, central banks remain supportive. Perhaps too supportive.

A significant rate hike in the next few years is unlikely. Central banks can keep interest rates low for a very long time to avoid a debt crisis. And governments, especially leftists, will feel obligated to save most companies, sectors, protect jobs or the unemployed.

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Dividends or Buybacks? An Important Difference

An important difference between dividends and buybacks is that a dividend payment represents an actual income. That is taxed now. A buyback influences stock prices but means no transaction for the individual investors. People do not need to pay taxes until they sell the shares. Buybacks promise only an unknown future return, where tax is delayed until the shares are sold. (Dividend tax is 15 or 20 percent in the USA, depending on the income.)




I’m not a certified financial advisor nor a certified financial analyst, accountant nor lawyer. The contents on my site and in my posts are for informational and entertainment purposes and reflecting my collection of data, ideas, opinions. Please, make your proper research or consult your advisors before making any investment or financial or legal decisions.

I’m long in gold miner stocks and silver, platinum, cryptocurrencies, energy companies. Short in the S&P 500, Brent crude and the German DAX at the time of writing.


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