The FT reports that stock buybacks are fading and the performance of companies that buyback shares is trailing the broader market averages. Companies that return cash to shareholders in the form of buybacks are better than those that don’t return any cash at all, but companies that favor dividends are the clear winners in our book. Dividends are more consistent and most often more reliable than buybacks.
Corporate share buybacks have been the single biggest source of demand for US equities since the financial crisis, as companies largely shunned business investment plans in favour of ploughing their earnings — and, increasingly, borrowed money — into their own stock.
But the buyback spree began to abate last year and companies have sharply reduced the purchases of their own shares in 2017, while the market rewards for generous buyback programmes have faded…
“In the short run buybacks can help with window-dressing [improving a company’s earnings per share] but in the longer run what is rewarded more is dividends, and we are seeing them come to the fore again,” said Kristina Hooper, global market strategist at Invesco.
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