I did a double-take recently while looking at 2026 performance for the Morningstar US Dividend and Buyback Index. The index has gained 31.5% so far this year. That’s more than twice the Morningstar US Total Market Index’s return.

The index is predicated on the concept of “total shareholder yield.” While dividends are much prized by investors, US companies have actually spent more on repurchasing their own shares in recent decades. Portfolios that include both dividend and buyback stocks reflect this reality. It’s also true that many companies engage in both forms of cash distribution.

The thing is, the past few years have been challenging for the concept. The Dividend and Buyback index last outperformed the broad market in 2022. What accounts for the 2026 turnaround in this strategy, and what can investors expect going forward?

Finally, a good year for total shareholder yield

When I run performance attribution analysis on the Dividend and Buyback index for 2026, one thing jumps out at me. Across economic sectors, companies using cash for dividends and buybacks are winning this year.

Technology is both the biggest economic sector in the US market and the most prominent example of this phenomenon. Some legacy companies like Cisco CSCO, Dell DELL, and Texas Instruments TXN are enjoying monster years. Each has benefited from the artificial intelligence buildout and has outpaced market behemoths Nvidia NVDA, Apple AAPL, and Microsoft MSFT—none of which are included in the Dividend and Buyback Index because of their low yields. In other key sectors too, stock prices for companies returning significant cash have performed well this year.

This marks quite a reversal. In the three years from 2023 through 2025, total shareholder yield-based investing lagged. The so-called Magnificent Seven companies that led the market during that period are not so magnificent when it comes to returning their massive cash hordes to investors. Nvidia recently hiked its paltry dividend but remains a low yielder, as do Microsoft and Apple. Tesla TSLA and Amazon.com AMZN have never paid a dividend, while Meta Platforms META and Alphabet GOOGL only initiated payouts in 2024. None of their buyback programs kept up with their climbing share prices at a rate that would merit inclusion in the index.

What about dividends and buybacks at the market level?

Looking at trends in cash allocation over time is revealing. My colleague Aryan Singh, a quantitative researcher on Morningstar Indexes, has calculated US dividend and buyback trends over the past 15 years. The graph below aggregates payouts from the nearly 3,500 constituents of the Morningstar US Total Market Index. Because some companies issue new shares even as they repurchase others, we’re displaying “net” buyback dollars.

The first thing you’ll notice is that buybacks are a lot more volatile than dividends. That’s understandable. “Buybacks are like dating; dividends are like marriage” is an adage that speaks to the difference in commitment levels. A company can repurchase shares when it sees them as attractively priced and/or when it’s feeling flush. By contrast, the market typically punishes the stocks of businesses that reduce, suspend, or eliminate dividends.

Buybacks fell sharply in 2020 during the pandemic. Buybacks have also leveled off lately, which is partially owed to companies deploying cash for AI-related buildouts. Meta is a prominent example of a company scaling back its buyback program to spend on AI infrastructure. Alphabet has recently followed suit.

Yet, the general trend of US companies spending more on buybacks than dividends is evident. Beyond the flexibility, buybacks are also more tax-efficient. Given their rise, market-level yield metrics and valuation tools that consider dividends alone could be obsolete. In fact, my colleague Philip Straehl of Morningstar Investment Management has done work on using a total payout model to value the market.

As far as which is better, I’m not going to wade into that debate. Dividends obviously have a cash-in-hand appeal. The dividend commitment is thought to focus corporate managers on steering a steady course. On the other side is the Warren Buffett argument: “When stock can be bought below a business’ value, it is probably the best use of cash.” Academic theory teaches that investors should be agnostic as to how cash is returned.

What does total shareholder yield mean for investors?

Obviously, investors looking to maximize current income will prefer dividends. The Morningstar Dividend and Buyback Index yields 2.85%. That’s well above the US stock market’s yield of less than 1.05%, but below the 4.00% level carried by some of our dividend-only benchmarks.

From a performance standpoint, the only guarantee for total shareholder yield investors is that performance will diverge from that of the broad US stock market. To understand why, look at the weighted average of current index constituents on the Morningstar Style Box, which visualizes stock size and investment style, relative to the market portfolio.

Dividend and Buyback Index vs. US Stock Market

The Dividend and Buyback index skews smaller than the overall market and leans to the value side. It’s heavier on high-yielding sectors like financial services, energy, and consumer defensive. It’s lighter on technology stocks.

That said, those sector biases tend to be even more extreme in dividend-only portfolios. Equity income investors have underperformed the market badly during boom times for technology stocks, the leading sector in recent years. Total shareholder yield investing tends to be more marketlike. That has been a positive in 2026 relative to a dividends-only strategy. But if you think there’s a US stock market bubble related to AI, a dividend-focused portfolio should provide more protection than a total shareholder yield portfolio.