S&P 500: Double Your Yield By Including This Hidden Payment

Investors are starved for yield — or so they think. It turns out the S&P 500’s total yield is closer to 3% if you factor in a less obvious payment, and it could move higher.


The S&P 500 total combined yield is 2.96% through the first quarter, if you include the payoff from massive stock buybacks, says Howard Silverblatt, index strategist at S&P Dow Jones Indices. The 1.42% yield on the cash companies are spending on buybacks adds to the 1.54% yield on dividends.

S&P 500 companies are sitting on $1.8 billion in cash — and investors are starting to demand their share.

Dividends are one way to return money to investors — and yet many S&P 500 companies are paying out smallish dividends. The S&P 500 dividend yield alone hit 2.2% in 2018, S&P says.

But adding in the value of buyback payouts put the relatively low S&P 500 dividend payout into perspective. And it gets better: Keep in mind that, unlike dividends, stock buybacks aren’t taxable yet.

“For the remainder of 2021, strong cash flow (companies) are expected to continue to dominate the buyback headlines,” Silverblatt said. “But the broader market and economic story may be the breadth, expenditures and willingness of the companies, which mostly shut down their programs over Covid uncertainties, to return to buybacks.”

S&P 500 Buybacks Are Rising Fast

Surging cash flow is putting S&P 500 companies back in the mood to buy their own shares. And the pace is quickening.

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S&P 500 companies plowed $178.1 billion, representing a nearly 37% jump from the fourth quarter of 2020, into buying their stock. That’s double the amount spent on S&P 500 buybacks in the second quarter of 2020. Many companies, looking to conserve cash during the pandemic, put buyback plans on hold.

Which S&P 500 sector is buying back stock with abandon? Technology. Companies in the S&P 500 information-technology sector spent $56 billion on buybacks in the first quarter. That’s more than any other sector and nearly a third of all money spent on buybacks.

What does that mean for the yield? The S&P 500 tech sector’s dividend yield is just 0.98%. But the total yield jumps to 3.09% if you add in the 2.11% buyback yield.

But S&P 500 financials are coming on strong in the No. 2 slot. S&P 500 companies in the financials sector plowed $35.4 billion into buying back their shares in the first quarter, Silverblatt says. That’s up more than 160% from the fourth quarter of 2020.

And the S&P 500 financials sector is likely to be the source for buyback growth going forward, Silverblatt says.

Who’s Paying All These S&P 500 Dividends?

If you’re trying to find out who’s making these giant buybacks, you don’t have to look far.

The top 10 largest buybacks account for 53.3% of all share repurchases in the first quarter, Silverblatt says. That’s down from the 87% of all buybacks made by the top 10 payers in the first quarter of 2020. But prior to the pandemic, typically the top 10 buybacks only accounted for 44.5% of the total.

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Apple (AAPL) is apparently in love with buying its own stock. It spent $18.8 billion in the first quarter alone on its stock — more than any other S&P 500 company. Such a huge buyback program helps make up for the tiny 0.7% dividend yield.

What good does buying back stock do for investors? Apple’s number of shares outstanding is roughly 2% lower now than at the end of 2020. That means the company’s profit and dividends are sliced into 2% fewer pieces. That makes each share worth more, all things held equal. Should you buy Apple stock now?

And that’s a hidden payment that even impresses Warren Buffett. And there’s still room for more. At a total dividend and buyback yield of 2.91%, it’s still below the 4.56% average since 2017.

Looks like S&P 500 companies have a way to slip some more of their cash investors’ way.

S&P 500 Top Buybacks

In the first quarter of 2021

Company Symbol Sector Buybacks ($ billions)
Apple (AAPL) Information Technology $18.8
Alphabet (GOOGL) Communication Services $11.4
Microsoft (MSFT) Information Technology $6.9
Berkshire Hathaway (BRKB) Financials $6.6
Facebook (FB) Communication Services $5.0
JPMorgan Chase (JPM) Financials $4.8
Oracle (ORCL) Information Technology $4.1
Home Depot (HD) Consumer Discretionary $3.8
Charter Communications (CHTR) Communication Services $3.7
Goldman Sachs Group (GS) Financials $3.6
Sources: S&P Dow Jones Indices
Follow Matt Krantz on Twitter @mattkrantz


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