There are a few ways companies can reward shareholders with their excess cash. They can reinvest that cash back into the business to fund more growth, they return that cash to investors as dividends or they can buy back their own stock. Increasingly, firms have focused on the latter. Buyback activity has surged since the 2000s. And while you can debate the effectiveness of buybacks, they’re here to stay.
At least in the long term.
In the short term, however, buyback activity has slowed to a standstill. Thanks to the coronavirus pandemic, companies are holding onto cash and that’s coming at the expense of buyback programs. For investors, this possesses an interesting issue. Without such massive corporate purchases, growth in total returns could be hard to come by.
On that front, dividends may end up driving most of the show going forward.
Find more out dividends and inflation here.
