CHART OF THE DAY: The Amount Of Cash Returned To Investors In Buybacks Is Too Large To Be Ignored

button more charts
button chart prev
button chart next

Most investors understand and appreciate the value of dividends, which were responsible for 42 per cent of stock market returns since 1930.

However, investors often overlook or underappreciate the cash returned by companies in the form of stock buybacks, an action that effectively increases each shareholders claim on a company.

NYU finance professor Aswath Damodaran put together this chart that translates the size of annual aggregate dividends and buybacks into S&P 500 units and percentage points.

“While there are some strict value investors who believe that dividends are qualitatively better than buybacks, because they are less volatile, the aggregate amount returned by US companies in buybacks is too large to be ignored,” writes Damodaran on his blog.

“Over the last decade, buybacks have been more volatile than dividends but the bulk of the cash flows returned to stockholders has come in buybacks.”

dividends buybacks

NOW WATCH: Money & Markets videos

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.