U.S. companies that repurchase shares, in addition to offering shareholder dividends, have outperformed the broad market with a higher relative yield, according to new insights from Morningstar Indexes based on the Morningstar US Dividend & Buyback Index.
The Index has declined 9.2% in 2022 as of December 9 amid a very challenging year for all global markets, including U.S. equities. This compares to a decline of more than 17% for the broad U.S. equity market as reflected by the Morningstar US Market Index.
Morningstar’s US dividend and buyback index, which was introduced in 2017 to measure the growing trend of companies repurchasing their shares instead of, or in addition to, paying dividends to return cash to shareholders, also compares favorably to the broad U.S. equity market from a yield standpoint
The Index had a 2.15% trailing twelfth month yield as of November 30, as compared to a 1.55% for the broad U.S. market index. When considering dividends plus buybacks for the Index, this rises to 6.78% for the trailing twelve months as compared to compared to 4.08% for the Morningstar U.S. Market Index.
Alex Bryan, CFA – Director of Equity Product Management, Morningstar Indexes
“Buybacks have come to rival dividends as the primary channel through which publicly traded U.S. companies return cash to shareholders. The Morningstar US Dividend & Buyback Index considers dividends and buybacks together, painting a more complete picture of firms’ cash distributions. This allows it to deliver greater exposure to technology stocks than many traditional dividend-yield strategies and has tended to give it a less pronounced value tilt and lower active risk (tracking error) relative to the market. As such, this index might be worth considering as an all-weather option for investors targeting stocks with attractive distribution yields.”
For more on the dynamics of U.S. dividends and buybacks along with recent enhancements to the Morningstar US Dividend & Buyback Index designed to significantly improved the yield of the Index, go to the Morningstar Indexes website.
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