A Shift in Market Performance
The Morningstar US Dividend and Buyback Index has climbed 31.5% through September 2026. This gain is more than double the return of the Morningstar US Total Market Index. The index tracks companies that prioritize total shareholder yield. This means firms that return cash through both dividends and stock repurchases.
For years, this strategy faced headwinds. It last outperformed the broad market in 2022. The recent turnaround highlights how changing corporate cash priorities impact stock returns. Investors often focus on dividend yields, but buybacks have dominated corporate cash distribution for decades.
Technology Sector Dynamics
Technology stocks drive the US market today. Yet, the largest tech companies have often ignored total shareholder yield. Nvidia, Microsoft, and Apple pay dividends that remain low relative to their share prices. Their massive cash reserves go toward growth or other projects rather than returning capital at a high rate. Consequently, these market leaders are not found in the Dividend and Buyback Index.
Instead, the index finds strength in legacy technology firms. Cisco, Dell, and Texas Instruments have delivered high returns in 2026. These companies have benefited from the buildout of infrastructure related to artificial intelligence while maintaining disciplined cash return programs. This marks a departure from 2023 through 2025, when high-growth tech firms without significant payouts led the market.
Trends in Corporate Cash Allocation
Quantitative research from Morningstar shows that buyback spending is volatile. It rises when companies feel flush or perceive their own shares as cheap. Dividends offer more stability. Corporate managers rarely cut them, fearing a negative market reaction. As the adage goes, dividends are like marriage while buybacks are like dating.
Pandemic-era buybacks fell sharply in 2020. More recently, firms like Meta and Alphabet have throttled back on repurchases to fund massive artificial intelligence projects. Despite these fluctuations, the long-term trend shows a clear preference for buybacks over dividends. Buybacks are more tax-efficient for many shareholders.
Implications for Long-Term Investors
Investors aiming for maximum current income usually favor dividend-focused portfolios. The Morningstar Dividend and Buyback Index currently yields 2.85%. This sits between the broad market yield of roughly 1.05% and the 4.00% yields found in some dividend-only benchmarks.
Total shareholder yield portfolios tend to tilt toward value stocks and smaller firms. They are heavier on financial services, energy, and consumer defensive sectors. This composition causes their performance to diverge from the broad market. If a market bubble exists in growth-focused AI stocks, a dividend-only portfolio might offer more protection. However, the total shareholder yield approach provides a middle ground that has proven effective so far in 2026.