At Long Last, Dividends and Buybacks Are Starting to Pick Up

Companies, tightfisted on payouts since last year’s market wipeout, feel flush now, Credit Suisse says.


Dividends and buybacks, those choice shareholder benefits that got shrunk amid the early pandemic market rout in 2020, are about to make a comeback. So says Credit Suisse’s chief US equity strategist, Jonathan Golub.

This return of capital to investors has lagged behind the expansion in earnings, Golub writes in a research note. Profits, of course, fuel share repurchases and dividends.

When the economy closed down in early 2020, he says, earnings dropped 20%. Companies in the S&P 500 responded by slicing payouts even more, by 27%. But since those bad old days, earnings have surged back up, by 32%. Nonetheless, stock repurchases and dividends have increased a paltry 1%, Credit Suisse calculates. “We expect this corporate frugality to reverse over the next one to two years, supporting higher stock prices,” Golub predicts.

In addition, free cash flow (what’s left over after operating expenses and capital expenditures), a broader definition of earnings and the source of capital returns to investors, has risen even faster than profits, according to Golub.

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Financial stocks had the steepest cuts in returned capital of any sector since the pandemic started, the investment firm indicates—off 45%. The Federal Reserve suspended buybacks for US banks in March 2020, but didn’t do the same for dividends. Instead, dividends were capped. In recent months, the Fed has relented on both strictures. The uptake for banks, though, has been limited. Bank of America has kept its dividend at 18 cents a share, and only recently announced a rather small ($25 billion) buyback.

For financials, net income rose 21% as capital returns dropped 45%, mostly due to the suspension of buybacks. Tech companies boosted net income by 25%, but buybacks and dividends slid 6%. For cyclical stocks, including energy, net income plummeted 31% and capital returns descended 41%.

Of course, there’s still an ongoing threat to buybacks. Democrats in Congress are eyeing taxing them more heavily in their search to fund ambitious federal spending plans.

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UK Task Force Provides Recommendations to Boost Pensions’ Voting Powers

British pensions investing in pooled funds currently have no right to vote on issues such as climate change, diversity, or pay.

A UK pension task force is calling on regulators, asset managers, and the government to remove stewardship barriers that prevent pension funds from voting on issues such as climate risk management, diversity, or pay.  

Currently, when UK pensions invest in pooled funds, they give up their rights to vote at the annual general meetings of the companies they invest in, according to the Taskforce on Pension Scheme Voting Implementation (TPSVI), which was established last December. Additionally, it said the vast majority of asset managers in charge of pooled funds have not always been prepared to engage with their clients’ voting preferences.

“Today, resolutions on topics like climate are sometimes requisitioned by shareholders, the owners of the company,” the task force said in a recently published report. “It is our view that motions of that type are likely to increase in number and to gain increasing public attention. It is making sure that the voting system can cope with increased scrutiny from stakeholders and the public that has shaped much of our work.”

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The report also includes two dozen recommendations to regulators and pension fund trustees on working to remove stewardship barriers. The three main recommendations are:

  1. Pension trustees should either set a voting policy of their own, or explicitly accept responsibility for those policies exercised on their behalf by their asset managers.
  2. All asset managers should offer asset owners the opportunity to set an “expression of wish” as to how votes are exercised on their behalf.
  3. The Financial Conduct Authority (FCA) should clarify that acting on an expression of wish is not in breach of fund rules; set expectations of asset managers for better disclosure of voting policies; and provide more “granular and comparable” reporting of how votes are cast and more comprehensive explanations for those votes.

“I see no reason why trustees shouldn’t be able to determine their own high level policies—on areas such as climate risk management, diversity, or pay—and find an asset manager to implement it,” Minister for Pensions and Financial Inclusion Guy Opperman said in a statement.

The TPSVI is chaired by Simon Howard, former CEO of the UK Sustainable Investment and Finance Association, and includes representatives of asset owners, insurers, and the government.

“Voting matters in terms of how companies are run, who is appointed to run them, and how they act,” the report said. “Good voting, used as part of broader stewardship, can help secure better financial returns for pension savers and that is a significant factor in seeking to improve the system.”

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