Are Buybacks An Oasis Or A Mirage?

Key Points

1. In 2014, the S&P 500 Index’s dividend (1.9%) + buyback (2.9%) yield = 4.8%, but this yield was not realized by investors.
2. As in most years, in 2014 issuance of new shares—for management compensation, new investments, and funding mergers and acquisitions—exceeded buybacks.
3. The dilution rate for the U.S. equity market in 2014 was 1.8% compared to the historical dilution rate of 1.7% over the 80-year period from 1935 to 2014.
4. U.S. equity investors in aggregate—contrary to appearances—have not realized a benefit from the recent spate of stock repurchases.

Like travelers in the desert searching for water, we survey the parched investment landscape looking for high-yielding assets to quench our thirst for investment income. Shimmering on the barren surface of zero real yields, is...