US Dividend and Buyback Index Returns 31.5% in 2026

The Morningstar US Dividend and Buyback Index has gained 31.5% since the start of 2026. This return exceeds the Morningstar US Total Market Index by a factor of two. The strategy has outperformed the broad market for the first time since 2022. Companies allocating capital to shareholders are leading the current rally.

This shift marks a reversal from the 2023 to 2025 period. During those years, growth-focused stocks dominated returns. Firms with low yields and minimal buyback activity led the market. In 2026, the preference for high cash distribution has flipped the performance hierarchy.

Legacy Tech Firms Lead Gains

Technology remains the largest sector in the US market. Within this group, established firms are driving index performance. Cisco, Dell, and Texas Instruments are posting significant gains. These companies benefit from the ongoing artificial intelligence infrastructure buildout.

These legacy names are outpacing major growth peers. Nvidia, Apple, and Microsoft are not part of the Dividend and Buyback Index. Their low yields exclude them from this specific basket. Tesla and Amazon do not pay dividends. Meta and Alphabet only began payouts in 2024.

Buyback programs at these growth giants have not kept pace with share price appreciation. Consequently, they lack the metrics required for index inclusion. The current leaders in the index are returning cash more aggressively than their high-growth counterparts.

Buybacks Show Higher Volatility

Historical data from the last 15 years shows distinct patterns in cash allocation. Buybacks exhibit higher volatility than dividends. Companies can pause repurchases when cash is needed for other operations. Dividend cuts, however, are rarely tolerated by the market.

Net buyback dollars fell sharply in 2020 during the pandemic. Levels have recently plateaued as firms redirect capital. Meta has scaled back its buyback program to fund AI infrastructure. Alphabet has followed a similar path. This shift in capital expenditure impacts index composition.

Tax Efficiency Drives Preference

US companies generally spend more on buybacks than on dividends. This trend persists across the nearly 3,500 constituents of the total market index. Buybacks offer greater flexibility in timing and execution. They also provide superior tax efficiency for shareholders compared to dividend income.

Valuation tools relying solely on dividend yields may be outdated. The rise in buyback activity changes how total shareholder yield is calculated. Investors are increasingly looking at combined cash return metrics. This approach captures the full scope of capital returned to owners.