US companies set to cut dividends
US companies, which have almost doubled profits since the financial crisis, are losing the benefit of record-low debt expenses as the Federal Reserve plans to taper bond purchases sending borrowing costs higher.
Higher debt costs will reduce buybacks and dividend increases that have boosted returns in the four-year bull market, investors say.
Companies that repurchased the most shares or regularly increased payouts beat the benchmark for US equity by more than 27 percentage points since 2009. S&P 500 members returned $82.4bn to shareholders in dividends last quarter, up from $71.2bn a year earlier, Bloomberg data shows.
"Part of the profitability story will start eroding," Paul Zemsky, the New York-based head of asset allocation for ING Investment Management, said. "It'll have more of an impact on financial transactions, like buybacks and dividends."
Authorised US buybacks reached a six-year high of $505bn so far this year after more than $1.7tn of repurchases since 2009.
The 100 stocks in the S&P 500 with the most buybacks relative to market value have beaten the index since March 2009, advancing 236pc compared with 141pc for the benchmark. The dividend yield on the S&P 500 averaged 2.12pc for the 12 months through May. (Bloomberg)