Buyback Or Dividend: Which ETF Wins YTD & What Lies Ahead?
Zacks Investment Research | Apr 25, 2019 01:00AM ET
Share repurchases and dividend payments are the two popular tools that the companies make use of to maximize shareholder value. President Donald Trump’s tax reform aided these corporate actions a lot in the past year as a great deal of tax savings led to higher buybacks and dividend payments.
In early 2018, per a Financial Times article, 400 earnings calls announced that How Will Tax Reform Affect Buyback and Dividend ETFs? ).
Buybacks Outdid Dividends
Buybacks were given preference to dividends in“both the rate of growth and aggregate dollars spent ," said Howard Silverblatt, senior index analyst, S&P Dow Jones Indices.
S&P Dow Jones Indices announced that the preliminary fourth-quarter 2018 S&P 500 stock buybacks touched a fourth successive record of $223.0 billion . This topples the previous record of $203.8 billion created during the third quarter of 2018 and marks a 62.8% increase from the year-ago period. There was an upheaval in the market in the fourth quarter, which dragged down stocks by an average 5.3%. This in turn gave a boost to buybacks.
Meanwhile, the S&P 500 dividends for the fourth quarter of 2018 totaled $119.8 billion, also a record rise of 3.5% sequentially. S&P 500 dividend growth almost came to a standstill, thanks to the waning benefits from Trump’s tax cuts.
The S&P 500 companies Oil ETFs Surge as Chevron (NYSE:CVX) Plans to Buy Anadarko ).
No wonder this trend made buyback ETFs like Invesco BuyBack Achievers ETF SPYB (up 19.5%) beat dividend growth ETFs, namely SPDR S&P Dividend (NYSE:SDY) ETF (TO:SDY) (up 13.2%) and ProShares S&P 500 Dividend Aristocrats ETF (BO:NOBL) (up 13.5%) this year.
What Lies Ahead?
Let’s admit that the boost from tax cuts was a one-time event. And the receding benefits will dent the buyback and dividend hike spree. For example, Information Technology buybacks already dropped 25.5% in fourth-quarter 2018 from the third-quarter level.
But then, the Fed is showing patience this year and the rates are likely to remain low. Dividend-paying securities are major sources of consistent income and should do well amid subdued rates. In this regard, investors can bank on some high-dividend ETFs like WBI Power Factor High Dividend ETF A Bunch of Dividend ETFs Hitting All-Time Highs ).
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