Companies shift profits into record dividends, but show more caution on stock buybacks

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Companies continued rewarding investors with healthy dividends in 2023 even as they tread more cautiously with returning profits through stock buybacks

NEW YORK — Companies continued rewarding investors with healthy dividends in 2023 even as they tread more cautiously with returning profits through stock buybacks.

Dividends hit a record $1.66 trillion globally last year, while stock buybacks eased. Investors can likely expect more dividend growth through 2024, according to a recent report from Janus Henderson. At the same time, companies face more uncertainty on economic growth, inflation and interest rates, leaving them to find a better balance of paying off debt and buying back stock.

The rare decline for stock buybacks comes amid high interest rates pressuring corporate borrowing. Buyback amounts still remain far higher than before the pandemic, but the path ahead is unclear with interest rates expected to remain higher for longer.

The technology, healthcare and financial sectors had the biggest reductions in buybacks in 2023. U.S. companies in those sectors accounted for a large portion of the pullback. While U.S. companies remained the biggest buyers of their own stock, they also had the biggest reduction overall, cutting buybacks by 17%.

“It is all about companies finding the appropriate balance between capital expenditure, their financing needs and shareholder returns via dividends, buybacks or both,” said Ben Lofthouse, head of global equity income at Janus Henderson, in a report.

Companies are making strong profits as consumers keep spending on goods and services. Net profit margins for the S&P 500 were just under 10.8% in 2023. That's down slightly from recent years but still allowing companies to stockpile