The record-setting pace of share buybacks is bearish

A current dividend-yield model suggests that the S&P 500 will produce a post-inflation return of just 3.3% over the next 12 months.

Corporate buybacks are surging, with both the July and year-to-date totals setting records. But that's no reason for bullish stock investors to celebrate.

According to data compiled by Jeffrey Yale Rubin, president of Birinyi Associates, S&P 500 SPX companies in July announced buybacks that were 88% higher than the record for any previous July, which occurred in 2007. Furthermore, the total for the first seven months of 2025 is 13% higher than the previous year-to-date record through July - which occurred in 2022.

A surge in share repurchases represents tentativeness about the future. That might seem counterintuitive, but researchers have found that when corporate executives feel confident about what's coming down the pike, they tend to use excess cash to increase dividends. When, like today, they are less confident, they instead tend to repurchase shares.

This contrast helps us to make sense of what happened in the second quarter of this year, when dividend growth was anemic. As Howard Silverblatt, Senior Index Analyst at S&P Dow Jones Indices, puts it: "Dividend growth declined in Q2 2025, as concern over forward cash commitment was inhabited by the uncertainty over tariffs and its impact on sales, costs and the general economy."

The combination of surging buyback activity and anemic dividend growth tells us that we're coming off very good times for corporate America - but there is significant uncertainty about whether those good times can continue. This interpretation is reinforced by the recent record level of insider selling, as I wrote in July.

The upshot is that the dividend yield tells us a lot more about the U.S. market's prospects than the buyback yield. (The market's buyback yield is calculated by dividing the total dollars that S&P 500 companies have spent on repurchases over the trailing 12 months by the combined market cap of all 500 companies.)

Analyzing the past four decades' data, I found no statistically significant relationship between the S&P 500's buyback yield and the index's performance over the subsequent 12 months, at least at the 95% confidence level that statisticians often use when assessing whether a pattern is genuine. With dividends, in contrast, the relationship was very significant - at the 99% confidence level.

The S&P 500's current dividend yield is a low 1.23%. To translate that into a forecast, I constructed a simple econometric model from the monthly correlations since the 1980s between dividend yields and the S&P 500's subsequent returns. That model suggests that the S&P 500 will produce a real total return of 3.3% over the next 12 months. That's not bad, but far short of the 20%-plus return the market has produced over the past year.

Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at [email protected]

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