Stock Buybacks * Dividends

Source: Compustat database (2003)

It is worth noting that while aggregate dividends at all US firms have grown at a rate of about 1.18% a year over this 10-year period, stock buybacks have grown 9.83% a year. In another interesting shift, the proportion of cash returned to stockholders in the form of stock buybacks has climbed from 32% in 1989 to about 57% in 2002. Stock buybacks, in the aggregate, exceeded dividends, in the aggregate, in 1999 for the first time in US corporate history. While the slowdown in the economy resulted in both dividends and stock buybacks decreasing in 2001 and 2002, buybacks still exceeded dividends in 2002.

This shift has been much less dramatic outside the United States. Firms in other countries are far less likely to use stock buybacks to return cash to stockholders for a number of reasons. First, dividends in the United States bear a much higher tax burden, relative to capital gains, than dividends paid in other countries. Many European countries,

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