Over the last two decades, the way companies allocate capital has meaningfully evolved. Twenty years ago, the percentage of capital being returned to shareholders was low – approximately 13% of total capital deployed, as shown below in Exhibit 1. Today, the amount of capital companies are returning to shareholders has more than doubled. In 2016, $408bn of corporate cash for companies in the US and Europe went to buying back shares and $552bn went towards dividends, meaning a whopping $960bn of total capital from public companies flowed back to investors. This compares to a mere $100bn twenty years ago.
We have written before about the – perhaps surprising – value that the current market ascribes to growth. So it is a bit of a puzzle as to why returning capital to shareholders remains so attractive relative to business investment.
Paying back your shareholders can of course be done via share buybacks or dividend distributions, although there are many differences between the two approaches. Both share buybacks and special dividends tend to be one-time events, whereas a dividend program tends to be more fixed and more
Capital deployment 20 years ago Capital deployment today representative of an ongoing corporate policy – which we can assess and compare to other policy choices. Dividends have represented a significant portion of the way companies return capital to shareholders, accounting for more than half of the total spending allocated to buybacks and dividends. This paper, the eighth in our ongoing series of Credit Suisse Corporate Insights, focuses on dividends, evaluating the impact of dividends on valuation and investor perceptions and whether dividends can be considered a strategic lever for management to drive value creation.