Harry Peterson
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Harry Peterson in Investing & more!,

Why returning cash to shareholders hasn’t been good for shareholder returns

Do dividends matter? Not lately—over the past two years, companies have done far better if they have used their money on themselves rather than their shareholders.

According to Goldman Sachs, Wall Street is so completely in growth mode that traditional return boosters related to value-style strategies haven’t had the same punch they historically have. Instead, companies using their money to invest in research and development (R&D) or other capital expenditures—as opposed to returning it to shareholders—have seen the best returns.

“Despite a long track record of outperformance, companies returning the most cash to shareholders via buybacks and dividends have lagged S&P 500 during the last two years. Instead, investors have rewarded companies investing the most for future growth, hoping that such investments will pay off in the current modest GDP growth environment,” the investment bank wrote to clients in a recent research report, adding that it expects this trend to continue.