Here is a number that should make every dividend investor nervous — the S&P 500’s dividend yield sits at just around 1.1%. A decade ago it was closer to 2%. Go back further and it was routinely 3% to 6%. The 10-year US Treasury now yields several percentage points more than the S&P 500 — a complete inversion of historical norms, since stocks used to yield more than bonds. What happened? Companies stopped prioritising dividends and started buying back their own stock instead. And in Malaysia, where the tax math makes buybacks even more attractive than in most other markets, the shift has barely started.
- US companies have spent more on buybacks than dividends for five straight years — roughly $1 trillion in buybacks versus $750 billion in dividends recently
- Buybacks are only taxed when you sell; Malaysia’s new 2% dividend tax (from YA2025) only kicks in above RM100,000 in annual dividend income
- Malaysian companies distributed roughly RM691 billion in dividends versus under RM10 billion in buybacks between 2009 and 2024 — a massive imbalance
- Buffett’s rule: buybacks only create value below roughly 1.2x book value — otherwise it’s a wealth transfer, not wealth creation
The Numbers Don’t Lie
In 2024, companies globally returned roughly $4.09 trillion to shareholders — about $2.56 trillion in dividends and $1.53 trillion in buybacks. On the surface, dividends still win. But look closer — recent years mark the fifth straight year in which US companies spent more on buybacks than dividends, roughly $1 trillion in buybacks versus $750 billion in dividend payments. S&P 500 dividends have grown around 7% annually over the past decade; net buybacks have grown roughly 10% annually. As a result, dividends now make up a shrinking share of total capital returns compared to a decade ago. The trend is most extreme in technology, where buybacks dominate cash returned by profitable tech firms — dividends carry something of a stigma in Silicon Valley, seen as an “old economy” habit.
Why Buybacks Are Winning
1. Flexibility — Dating vs Marriage
There’s an old expression in capital markets — buybacks are like dating, dividends are like marriage. Once a company commits to a quarterly dividend, the market expects it every quarter forever. Cut or eliminate it, and the market punishes the stock hard. Dividends are sticky, and companies are terrified to reduce them. Buybacks offer flexibility — companies can be opportunistic, repurchasing shares when cash is plentiful or shares look undervalued, and simply pause when headwinds hit, without triggering the same panic a dividend cut would cause.
2. The Tax Advantage — Especially in Malaysia
The tax math is straightforward. With buybacks, you only pay tax if and when you sell your shares — hold them, and your fractional ownership of the company quietly increases with no taxable event. Warren Buffett is famously anti-dividend for his own company Berkshire Hathaway for exactly this reason, even while Berkshire happily collects dividends from the companies it invests in.
💡 The Malaysian angle: Malaysia has no capital gains tax on listed shares, and from year of assessment 2025 a new 2% dividend tax applies only to individual dividend income above RM100,000 a year — the first RM100,000 stays fully tax-exempt under the single-tier system, and EPF, ASNB and unit trust distributions are entirely unaffected. For most retail investors this changes little day to day, but for high-net-worth shareholders it tilts the math meaningfully further toward buybacks over large dividend payouts.
3. The Buffett Rule — Buy Only When It’s Worth It
Here is where buybacks can go badly wrong, and why the smart money gets it right. Warren Buffett’s rule of thumb is to repurchase shares only when a company trades below roughly 1.2 times book value — in those cases, he has called buybacks “probably the best use of cash.” Apple’s historic buyback programme drew Buffett’s praise on similar logic — management was unlikely to find an acquisition better than buying its own undervalued stock. The cautionary counter-example is Sears, which spent billions on share repurchases while its shares later collapsed over 99% — shareholders would have been far better off simply receiving that cash as dividends. Buybacks only create value when shares are repurchased below intrinsic value; otherwise it is just a wealth transfer from long-term holders to those who sell.
The Corporate Malaysia Twist
Malaysia is one of the most dividend-dependent equity markets globally — the large majority of total equity returns over the past decade have come from dividends rather than price appreciation. From 2009 to 2024, Malaysian companies distributed an estimated RM691 billion in dividends versus just RM9.8 billion in buybacks — a roughly 70-to-1 imbalance. Analysts at BIMB Securities have called it puzzling that Malaysian corporates make so little use of buybacks given the tax perks, noting buybacks could also be the spark that re-rates undervalued stocks. There are early signs of change — around 17% of Bursa Malaysia-listed companies have undertaken buybacks in recent years, concentrated mostly among mid-cap stocks, with the majority of those buybacks occurring when shares traded at or below book value, and positive short-term returns commonly following the buyback announcement.
But Wait — Dividends Still Have Their Place
In a downturn, buybacks stop fast; dividends are stickier. Analysts have warned that overreliance on buybacks creates risk as valuations stretch — if a downturn hits, buybacks can vanish far more quickly than dividends, pulling away a pillar of market support just when income matters most. Dividends also signal management discipline and long-term confidence, since a commitment that can’t be easily walked back carries weight. Europe remains a case study in dividend dominance, where higher capital gains and dividend withholding taxes keep dividends more tax-efficient than in the US or Malaysia. And crucially — if you are retired and relying on portfolio cash flow, a buyback doesn’t put food on the table. Dividends do.
⚠ Not all buybacks are good buybacks: If shares are overvalued, repurchasing them destroys value rather than creating it. If management is buying back stock mainly to artificially boost earnings-per-share rather than because shares are genuinely undervalued, treat that as a red flag rather than a bullish signal.
How to Actually Play This
- ✓You need regular income (retirement, cash flow)
- ✓You want a durable signal of management confidence
- ✓You’re diversifying internationally where yields are higher
- →You’re focused on total return, not current income
- →The company is buying back shares below book value
- →You want tax efficiency — especially in Malaysia’s zero-CGT environment
Actionable Takeaways
New to dividend investing itself? Start with our guides on Malaysian high-dividend stocks and unit trusts vs ETFs for the broader income-investing landscape.
“If a downturn hits, buybacks will stop far more quickly than dividends, potentially pulling away a key pillar of market support.”
— Jim Reid, Deutsche Bank
Dividends are not dead — they are simply no longer the primary vehicle for capital return globally, and Malaysia’s own tax and regulatory environment arguably makes buybacks even more attractive here than in most markets. Yet Malaysian companies remain overwhelmingly dividend-first, with buybacks still a rounding error by comparison. For investors, the sensible approach is not to pick a side, but to understand what each tool actually signals — and to watch for genuine, below-book-value buybacks as a potential undervaluation clue on Bursa Malaysia.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Market figures are illustrative and based on recent industry and news reporting; tax rules are subject to change — verify current tax treatment at hasil.gov.my. Please consult a licensed financial advisor before making investment decisions.
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