Investors Will See More Cash Returns. That’s Good for the Stock Market.

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Companies have been returning more money to shareholders. They’re set to continue increasing those amounts, a potential boon to the stock market.

For starters, total dividends and stock buybacks executed by S&P 500 companies have been running at an annual pace of around $1.2 trillion recently, according to Credit Suisse data. That’s up from about $900 billion during the depths of the pandemic in 2020, for a roughly 33% increase. Enabling companies to do this has been an increase in earnings during the economic recovery, and gobs of cash on corporate balance sheets

Believe it or not, companies could still return a lot more cash to shareholders than that. The growth in amounts of cash returned to shareholders has been about half the growth in aggregate earnings per share for S&P 500 companies from 2020 through 2022, according to FactSet data. That means payout ratios—the percent of profits that a company pays out to its shareholders—have fallen.

“Earnings have recovered much faster than dividends, resulting in a decline in the payout ratio,” writes Jonathan Golub, chief U.S. equity strategist at Credit Suisse, in a report. “The dividend payout ratio should increase in coming quarters,” he added, noting that the same is also true for buybacks. 

Any large increases in cash returns to investors would serve as a significant help to a stock market that has been ailing. The S&P 500 is down about 14% so far this year. The most recent overarching problem has been that economic growth will slow down as the Federal Reserve lifts interest rates to combat high inflation. So if companies lift their dividend and buyback payout ratios to where they were in several years during prepandemic times, firms could return just over $1.5 trillion to investors. That would bring some buying interest back into the market, helping to buoy stock prices. To be sure, if any economic damage brings earnings downward, that cash returns may not rise quite so much, but they could still move up a bit. 

Some of the best examples of companies that could return more cash are oil producers. With the price of the commodity surging, oil producers’ sales and free-cash-flow estimates for this year have risen. But buybacks for some oil companies still seem fairly low, given the level of cash flow they expect to generate. Plus, cash-flow estimates themselves could rise for years past 2022 if the price of oil remains above $100 a barrel. That’s partly because current estimates for beyond this year conservatively assume that the price of oil will drop, explains Bill Selesky, analyst at Argus Research.

Pioneer Natural Resources (ticker: PXD), with a $66.6 billion market capitalization, is a prime example. The company’s most recent earnings call noted that it is buying shares back at a $1 billion annual pace. That’s just under 12% of its expected free cash flow for the year of $8.7 billion. The company is hoping to keep cash flow at that level beyond 2022, if oil prices can hold up. But Pioneer also said that it has the ability to return about 80% of free cash flow to shareholders. That’s not the most likely outcome, Selesky said, but it means management could still increase buybacks.

Investors should just keep their eyes peeled for companies that are about to announce greater cash payouts. It could lift a host of stocks. 

Write to Jacob Sonenshine at