Increase in frequency of corporate share repurchases
In the world of finance, the debate between dividends and share buybacks continues to rage. Paul Schultz, a professor at the University of Notre Dame, emphasises that a dividend reflects a company's capital discipline, respect for small investors, and prudence. However, the landscape is shifting as buybacks grow in popularity.
Recent figures reveal that global dividend payouts reached a first-quarter record of $339.2 billion, but this year's ordinary dividends are forecast to come in at £79.7 billion, a 6.5% decrease from the all-time high of £85.2 billion paid out in 2018. This dip in dividends is noticeable in the UK market, where many British blue chips slashed payouts during Covid, resulting in a 44% drop in 2020 compared with 2019.
The FTSE 100's forecast ordinary dividend yield is 3.8% this year, but this figure rises to 5.3% when factoring in buybacks already announced. This shift towards buybacks is not unique to the UK. Russ Mould of AJ Bell stated that share buybacks are more prevalent in the UK than ever before.
The rise in buybacks can be attributed to their perceived flexibility for boardrooms compared to dividends. James Gard of Morningstar notes that buybacks offer more flexibility, allowing companies to return capital to shareholders without committing to a regular payout.
A common argument for buybacks is that the shares are undervalued. This sentiment is echoed in the UK, where British shares are trading at historically low levels. In fact, British shares are so low that "we are inclined to agree with the CEO" that they might be undervalued, according to a recent statement.
The Janus Henderson Global Dividend index reported the record for global dividend payouts, but the UK's growth has been relatively pedestrian, according to Andrew Jones of Janus Henderson. Despite this, some companies are still reducing their share count significantly. Since the start of 2021, BP has reduced its share count by 17%, and Barclays is down 14%.
Brexit, the pandemic, and surging inflation have affected UK plc, but the trend towards buybacks shows no signs of slowing down. Nick Shenton of Artemis Income tells Hargreaves Lansdown that this shift towards buybacks is a significant change in the UK market.
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In the three companies with the largest stock buybacks in 2021, Nordea repurchased around 607 million shares totaling 6.2 billion euros; Deutsche Bank completed a 750 million euro buyback program in 2025 (with a 50% increase in total capital distributions compared to 2024); and CANCOM authorized a buyback of up to 10% of its share capital.
While dividends may still hold a special place in the hearts of many investors, the trend towards buybacks is undeniable. As the market continues to evolve, it will be interesting to see how this debate unfolds.
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