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January 4, 2023

Dividends: Looks Like They’re Back in Style

For a long time, a lot of companies seem to have preferred buybacks to dividends as a way to return capital to stockholders.  Among other things, buybacks offer companies an opportunity to boost ROE & EPS by reducing the number of shares outstanding, provide a non-dilutive source for equity awards and give each investor the ability to choose whether to participate.  On the other hand, sharp criticism of the amount of money devoted to them has resulted in the imposition of a 1% excise tax and will likely soon result in significant new disclosure requirements.

With all the noise surrounding buybacks, it shouldn’t come as a surprise that the good ol’ fashioned dividend has been experiencing a bit of a renaissance.  As this excerpt from a recent WSJ article explains, 2022 was a banner year for dividends – and 2023 is likely to be even bigger:

S&P 500 companies spent a record amount on dividends this year, a trend that is expected to continue in 2023 despite a slowing economy as more of the companies that had suspended or cut their dividends early in the pandemic resume payouts. Companies in the S&P 500 allocated an estimated $561 billion toward dividends in 2022, up from $511.2 billion in 2021 and the highest amount on record, according to S&P Dow Jones Indices, a unit of S&P Global Inc. Dividend spending is poised for another record in 2023 as companies are under pressure from investors to keep increasing returns, said Howard Silverblatt, a senior index analyst at S&P Dow Jones Indices.

Despite the headwinds they’re facing, buybacks aren’t likely to go away. While buybacks by S&P 500 companies, declined by 10% in the third quarter, the article says they’re expected to decline only slightly from the $963 billion that companies spent on them this year.

John Jenkins