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Investing.com - S&P 500 dividend yields are now hovering around a record low, according to analysts at Deutsche Bank (ETR:DBKGn), reflecting a multi-decade era that has seen a rise in prevalance of share buybacks.
Both dividends and buybacks aim to reward shareholders for their investments. Dividends represent income for a current year and allow investors to retain their shares, while a repurchase mirrors capital gains and removes shares from the market.
But writing in a note to clients, the Deutsche Bank analysts flagged that dividend yields in the benchmark S&P 500 are now within only 20 basis points of their all-time low.
They noted that this has followed a shift that initially picked up momentum in the early 1980s, when a reduction in U.S. capital gains taxes and the implementation of clear regulatory guidelines enhanced the appeal of share buybacks.
The trend further exploded during a tech boom in the 1990s, as high-growth companies retained earnings to reinvest, rather than distribute them as dividends, the analysts added.
By the mid-2000s, buybacks had overtaken dividends as the primary way U.S. companies returned capital to shareholders and has stayed dominant ever since, they said.
The mindset of growth over income has returned "with force over the past decade, once again led by mega-cap tech," the analysts said.
Although they warned of risks from a market more driven by buybacks than dividends, including financial engineering and timing, the analysts said it remains "hard to argue with the results."
"Despite these risks, U.S. equities -- home to the most aggressive buyback culture and lowest dividend yields among developed markets -- have outperformed global peers for decades," they wrote.
"So does a near-record low dividend yield matter? Not while companies are flush with cash and happy to repurchase their own stock."