Will the Stock Buyback Boom Continue in 2026? (The Morning Filter Excerpt)

Dividend Investing in a Buyback Boom: A Discussion with Dan Leavitz

Key Concepts:

• Share Repurchases (Buybacks): A company buying its own stock from the market, reducing the number of outstanding shares.
• Dividend Yield: The annual dividend payment per share, expressed as a percentage of the stock's price.
• Dividend Commitment: The expectation in the US market that companies maintaining a quarterly dividend payout will continue to do so.
• Tax Advantages (Buybacks vs. Dividends): The differing tax implications of share repurchases and dividend payments in taxable accounts.
• International Dividend Stocks: Dividend-paying stocks from markets outside the United States.

1. The Stock Buyback Boom in the US

The conversation centers around a significant trend: a surge in share repurchases (buybacks) by US companies. Dan Leavitz notes that 2025 is projected to be the fifth consecutive year where companies spend more on buybacks than on dividend payments – approximately $1 trillion on buybacks versus $750 billion on dividends. This trend has been ongoing for roughly two decades. He explains that buybacks offer tax advantages for companies and shareholders (if shares aren’t sold), as dividends are taxed in taxable accounts while the increase in fractional ownership from buybacks isn’t taxed until the shares are sold. Leavitz uses the analogy of “buybacks are like dating, dividends are like marriage,” highlighting the flexibility of buybacks compared to the commitment associated with dividends. A company reducing or eliminating a dividend is often penalized by the market, whereas buybacks can be more opportunistic, executed when a company has excess cash or when shares are undervalued.

2. Motivations Behind the Buyback Preference

Beyond tax benefits and flexibility, Leavitz identifies a cultural factor, particularly within the technology sector. He states that dividends carry a “stigma” in Silicon Valley, perceived as a sign of a lack of better investment opportunities like reinvestment and Research & Development (R&D). This perception contributes to technology companies favoring buybacks over dividends. He emphasizes that it’s not solely about avoiding commitment, but also about a preference for alternative uses of capital.

3. Implications for Dividend Investors

The increasing prevalence of buybacks directly impacts dividend investors. Leavitz explains that the “buyback boom” results in “lower yields.” Historically, the dividend yield on the US equity market ranged between 3% and 6%. Currently, it stands at 1.1%, a low figure even compared to the past 25 years. This makes it increasingly difficult for investors seeking income from US stocks to achieve their desired returns.

4. International Markets as an Alternative

Leavitz suggests that US investors seeking higher dividend yields should consider international markets. He notes that the buyback trend hasn’t taken hold to the same extent overseas. In many international markets, dividends are treated less as a rigid commitment and can be adjusted more opportunistically. Furthermore, the tax advantages of buybacks are less pronounced, particularly in Europe.

The Morningstar Global Markets ex-US Index currently offers a dividend yield exceeding 3%, significantly higher than the 1.1% yield in the US market. However, he cautions investors about potential tax implications, including the possibility of double taxation on dividends depending on the company and the market.

5. Tax Considerations for International Investments

Investing in international dividend stocks introduces tax complexities. Leavitz explicitly states that double taxation on dividends is a possibility, contingent on the specific company and the market in which it operates. Therefore, thorough research into the tax implications is crucial before investing in international dividend-paying stocks.

6. Notable Quotes

• “Buybacks are like dating, dividends are like marriage.” – Dan Leavitz, illustrating the flexibility of buybacks versus the commitment of dividends.
• “Dividends have a little bit of a stigma. It's just the culture of Silicon Valley. Dividends are kind of considered old economy.” – Dan Leavitz, explaining the preference for buybacks in the tech sector.

7. Data and Statistics

• 2025 Projection: $1 trillion spent on share repurchases vs. $750 billion on dividend payments in the US.
• Historical US Dividend Yield: 3-6% (Historically)
• Current US Dividend Yield: 1.1%
• Morningstar Global Markets ex-US Index Dividend Yield: >3%

8. Logical Connections

The conversation flows logically from identifying the buyback boom to analyzing its causes, then to its consequences for dividend investors, and finally to potential solutions (international markets) and associated risks (tax implications). Each section builds upon the previous one, creating a cohesive discussion of the evolving landscape of dividend investing.

Conclusion

The discussion highlights a significant shift in corporate capital allocation strategies in the US, with buybacks surpassing dividends in popularity. This trend is driven by tax advantages, corporate flexibility, and cultural preferences, particularly within the technology sector. For dividend investors, this translates to lower yields in the US market, prompting consideration of international alternatives. However, investors must carefully evaluate the potential tax implications of international dividend investments to make informed decisions. The key takeaway is that the traditional approach to dividend investing requires adaptation in the face of these changing market dynamics.