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Mint
6 days ago
- Business
- Mint
Why dividends are better than stock buybacks
Stock buybacks are replacing dividends as the biggest source of capital returns. That may be creating big risks for income investors. Investors love buybacks and dividends, but the two forms of capital return aren't exactly the same. Dividends are a cash payout to a shareholder, while buybacks remove shares, giving remaining shareholders a larger stake of a company. The S&P 500's dividend yield has been shrinking. The overall index yields about 1.2%, near the all-time low reached during the dot-com bubble, dragged down by the relatively low payouts of tech giants like Nvidia, which yields only 0.02%. The index's paltry yield is a big change from the past. The S&P 500 typically yielded more than the 10-year Treasury note up until the 1960s, notes Deutsche Bank strategist Jim Reid. Just 10 years ago, the S&P 500 and 10-year yielded close to 2%, with the index trading for 17 times earnings. Now it yields about three percentage points less than the 10-year while trading for 22 times estimated earnings over the next 12 months. Dividends are lagging, but buybacks have picked up the slack. Nvidia, for instance, has repurchased some $40 billion worth of stock over the past year. Combined with the meager dividend, its shareholder yield is a more respectable 1%. Nvidia isn't the only company favoring buybacks. Over the past decade, S&P 500 dividends paid have grown about 7% a year on average, according to Bloomberg, while net buybacks—repurchases minus stock issuance—have grown 10% a year. As a result, dividends make up just 43% of capital returns, down from roughly half 10 years ago. On the surface, the buyback tilt doesn't look like a problem for anyone besides income investors seeking cash payouts. Nvidia is near an all-time high, and U.S. stock markets have performed well, beating international indexes. 'It's hard to argue with the results," Reid writes. An overreliance on buybacks, however, creates a new risk, as stock market valuations get stretched and the U.S. economy shows signs of weakening. 'If a downturn hits, buybacks will stop far more quickly than dividends, potentially pulling away a key pillar of market support," Reid warns. 'In a crisis, the lack of durable income from dividends may matter more than markets currently appreciate." What can investors do, given the new buyback risk? Preparing is always a good idea. Knowing which stocks are relatively more reliant on buybacks and which stocks have attractive dividend yields with ample earnings to continue protecting and growing dividends in a downturn can mean the difference between pain and gains. Marathon Petroleum, Boyd Gaming, Kroger, and Nike stand out as heavy buyers of their own stock. That isn't a problem on its own, but the companies have bought back twice as much stock over the past 12 months than they are projected to earn over the next 12, according to Bloomberg. Losing buyback support could be material for that quartet. On the other hand, biotech Royalty Pharma, retailer Bath & Body Works, bank Popular, packaging maker Sealed Air, insurer MetLife, and oil-services provider Halliburton yield an average of 2.6%, while paying out only about 25% of net income projected over the coming 12 months. Wall Street likes the stocks, too. The average Buy-rating ratio for the shares is about 75%, above the 55% for the average stock in the S&P 500. The average Buy-rating ratio for the four buyback-heavy stocks is about 47%. Fundamentals matter, of course, and appearing on a list doesn't justify buying or selling a given stock. But as buybacks continue to displace dividends, income investors should be aware that all capital returns aren't created equal.
Yahoo
13-07-2025
- Business
- Yahoo
Where have all the dividends gone?!
Remember dividends? You know, the check you used to collect every quarter for holding a share of a company? I say "used to" as you have probably long moved on to chasing growth stocks with no dividend checks, such as Nvidia (NVDA). I get it — why hold out for a measly dividend check four times a year when you can get rich overnight from a blowout quarter from Nvidia or fellow momo name Palantir (PLTR)! You aren't alone in forgetting about dividends — Corporate America appears to be doing the same as it plows cash flow into AI investments and share repurchases. (I hate repurchases, but that's a story for a different day.) Here's the context on this one. S&P 500 (^GSPC) dividend yields are now within 20 basis points of their all-time low, according to fresh research from Deutsche Bank strategist Jim Reid. Those lows were reached in the tech bubble of 2000, when everyone was paying up for growth and couldn't care less about dividends (sound familiar?). There is an important historical consideration to this, Reid notes. Prior to 1958, dividend yields were consistently higher than government bond yields. Stocks were viewed as super risky — lacking diversification, regulatory oversight, and corporate transparency. Investors demanded a high dividend yield as compensation for those risks. Moreover, dividends often enjoyed more favorable tax considerations than today, helping to cement the view that income was the most reliable path to long-term prosperity. Fast-forward to 2025, and companies are eschewing dividends for buybacks. Can you blame them? Share repurchases boost EPS, the same EPS that is often tied to executive bonuses. Further, higher EPS can support a higher stock price. Double bang for the buck! But a market fueled by buybacks rather than a steady stream of dividends has risks, Reid said. For one, buybacks are more discretionary. I am very keen to see if companies were still aggressive buyers during the second quarter amid the Trump trade turmoil or if they pulled back. Second, buybacks tend to occur more often at market tops than bottoms. That means companies are buying stock at the top, which could lead to a poor return on investment for shareholders. And three, buybacks encourage short-term thinking by managers. "So does a near-record low dividend yield matter? Not while companies are flush with cash and happy to repurchase their own stock," Reid said. "But it does make the US market more high beta. If a downturn hits, buybacks will stop far more quickly than dividends, potentially pulling away a key pillar of market support." "And with dividend yields now approaching all-time lows, there's a case to be made that valuations and investor expectations have become stretched. In a crisis, the lack of durable income from dividends may matter more than markets currently appreciate," he added. I slightly disagree with Reid, however. I do think dividends matter right now, and they should remain an important consideration in buying or selling a stock. I would much rather see a company lift its dividend by 15% than buy back a slug of stock. It's a good indicator of the long-term health of the business. If the business is going to suck wind five years from now, you don't lift your dividend by 15%, because cutting it five years from now will be met harshly in the markets. "I do care about dividends, and I like to see dividends on the stocks in our portfolios," Crossmark chief market strategist Victoria Fernandez told me on Yahoo Finance's Opening Bid (watch above). "And so I think investors should be paying attention to this. It helps provide a little bit of a buffer to the volatility that you see in the marketplace." One of Fernandez's top dividend picks: Verizon (VZ), which sports a dividend yield of 6.3%. The 10-year Treasury yield currently sits at 4.4%. Join me and the Yahoo Finance newsroom for our annual Invest conference, taking place in New York City, November 12-13. We'll delve into the most critical issues powering global markets with renowned business leaders, investors, policymakers, and other experts. Gain unbeatable context and bring your own expertise to the table as you connect with our community of professional and individual investors. Learn more and register today! Brian Sozzi is Yahoo Finance's Executive Editor and a member of Yahoo Finance's editorial leadership team. Follow Sozzi on X @BrianSozzi, Instagram, and LinkedIn. Tips on stories? Email Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
30-06-2025
- Business
- Yahoo
Breaking: Trade Deal Breakthrough Sends S&P, Nasdaq and Dow Futures Higher
June 30 - S&P 500 futures climbed about 0.4%, while Nasdaq 100 futures and Dow futures each rose roughly 0.6%, as optimism over recent trade agreements lifted market sentiment. The 10?year U.S. Treasury yield dipped three basis points to 4.26%, while the 2?year rate inched up two points to 3.75%, reflecting a modest shift in bond demand. Friday's session saw both the S&P 500 and Nasdaq Composite close at record highs, buoyed by advancing economic data and easing tariff concerns. The action sets the stage for another upbeat open. On the trade front, a UK?U.S. pact took effect Monday, cutting export duties on British automotive and aerospace goods. Last week also brought the finalization of a U.S.?China trade agreement, with the White House signaling imminent accords with ten other key partners. The U.S. tax bill should clear the Senate this week after last weekend's negotiations, then return to the House for final approval, said Deutsche Bank's Jim Reid. He added that markets will soon focus on the July 9 deadline for reciprocal tariffs. Investors will also eye June's Chicago PMI and Dallas Fed manufacturing surveys for clues on economic momentum ahead of the holiday. This article first appeared on GuruFocus. Error while retrieving data Sign in to access your portfolio Error while retrieving data Error while retrieving data Error while retrieving data Error while retrieving data
CNBC
30-06-2025
- Business
- CNBC
This year's events likely mean U.S. cities are at peak expensiveness, says Deutsche Bank
Jim Reid, Deutsche Bank's global head of macro and thematic research, discusses their 2025 'Mapping the World's Prices' report.
Yahoo
27-06-2025
- Business
- Yahoo
Breaking: S&P 500 and Nasdaq Futures Hit New Highs Ahead of PCE
June 27 - Equity futures climbed as Wall Street awaited Friday's core Personal Consumption Expenditures report. S&P 500 futures inched up about 0.4%, matching gains for Nasdaq 100 futures and Dow futures. U.S. 10-year Treasury yields ticked higher by three basis points to 4.27%, while two-year yields rose two basis points to 3.75%. Earlier, SPX futures briefly reached 6,202.00 points, eclipsing the prior intraday record of 6,147.43 set on Feb. 19. Markets seem to have found a rare pause amid Middle East calm, said Jim Reid of Deutsche Bank, noting that traders appear unfazed by the looming July 9 tariff deadline. Analysts expect May's core PCE index to show a 0.1% month-on-month rise, lifting the year-on-year rate to around 2.6%, up from 2.5% in April. Headline PCE is forecast at a 2.3% annual gain. Paul Donovan at UBS observed that May income and spending data may soften after consumers front-loaded purchases ahead of trade taxes, with tariff impacts likely to appear in coming months. With the PCE reading and June consumer sentiment, seen steady at about 60.5, due before the opening bell, markets may hold their breath for fresh cues. This article first appeared on GuruFocus. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
