After The Profits Boom, A Pleasant Surprise Awaits Investors

After The Profits Boom, A Pleasant Surprise Awaits Investors
Andrew Rummer

over 2 years ago1 min

Mentioned in story

Company profits have decisively rebounded from the blow of the coronavirus pandemic. History suggests dividends and buybacks will soon follow. 

As the chart above shows, aggregate profits are currently even higher than their pre-pandemic peak. Yet companies have so far proven reluctant to return cash to shareholders via dividends or stock buybacks

US stocks look incredibly expensive when compared to their dividend payments, with the S&P 500’s dividend yield at a 20-year low. Any increase in dividend payments would help bring that yield up, and make the stock market relatively more attractive as an investment. 

In a report this week, investment bank Credit Suisse argued that it’s only a matter of time before that happens. 

“When the global economy shut down in 2020, S&P 500 profits declined by 20%. Companies responded by cutting dividends and buybacks by an even larger 27%,” Credit Suisse wrote. “More recently, earnings have jumped 32%, yet dividends and buybacks have increased by only 1%. We expect this corporate frugality to reverse over the next 1-2 years, supporting higher stock prices.”



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