Every fourth quarter, the market is filled with short-term noise from financial reports, interest rate decisions, and sector rotation. However, for investors genuinely planning long-term allocations to US stocks, more important than chasing short-term fluctuations is answering a fundamental question: why have US stocks continuously generated returns for global shareholders over the past century? The answer certainly includes technological innovation, consumer resilience, and entrepreneurship, but one main thread is often overlooked—the shareholder return culture centered on buybacks and dividends. Understanding this main thread is key to truly grasping "why choose US stocks."
I. Shareholder Return Culture: The Deepest Moat of US Stocks Compared to Other Markets
Looking at the long history of the S&P 500, its annualized return has long hovered around 10%, with a significant portion coming from the compounding effect of dividend reinvestment. More notably, the scale of stock buybacks by US listed companies has continuously increased over the past decade, with the total annual buyback amount of S&P 500 components reaching the trillion-dollar level in recent years, forming a "dual-engine" return structure alongside cash dividends.
What is a buyback? It is when a listed company repurchases its own shares from the secondary market using its own cash. The direct effect of this action is to reduce the outstanding share capital—when the total company profit remains unchanged, a smaller share capital naturally leads to an increase in earnings per share (EPS), thereby improving the "denominator logic" of the stock price. This is distinctly different from the path of relying solely on earnings growth to boost stock prices; it is equivalent to providing long-term holders with a more certain return pipeline.
II. How Buybacks Become the "Invisible Dividend" of US Stocks
Taking well-known tech leaders as examples, Apple, for instance, has invested hundreds of billions over the past decade in buybacks, significantly reducing outstanding shares. Even when revenue growth slows in certain years, earnings per share and stock prices remain strongly supported; giants like Microsoft and Google also use buybacks as a routine tool. This "profit growth + capital reduction" dual-strike model is a key secret to why blue-chip US stocks have long outperformed their counterparts in many other markets.
At the index level, the significance of buybacks is even deeper. The S&P 500 index is market-cap weighted and regularly subjects companies to selection processes that favor stronger performers. The value per share boosted by buybacks overlaps with the index's self-evolution mechanism, making "long-term holding of a broad index" an effective strategy repeatedly validated by a century of data in the US. This is also one of the structural reasons why global pension funds and sovereign wealth funds have long over-allocated to US stock assets.
III. Dividend Quality: The Compounding Magic of Dividend Growth Stocks
If buybacks are the "invisible dividend," then cash dividends are the visible cash flow. The US market has nurtured the famous group of "Dividend Aristocrats"—companies that have increased dividends for 25 or more consecutive years, spanning various sectors such as consumer goods, healthcare, and industry. These companies often possess strong free cash flow and mature business models, with dividend growth rates that have consistently outperformed inflation, providing investors with a return structure that has "a dividend floor and growth elasticity."
For long-cycle funds like pensions and educational savings, this predictable cash flow is particularly valuable. In contrast, some companies in emerging markets tend to retain profits or reinvest them blindly, with a relatively weak consciousness of direct shareholder returns. This is the micro-foundation for global capital continuously flowing into US stocks.
IV. The Institutional Soil: Where Does Shareholder Return Culture Come From?
Shareholder return culture is not created out of thin air; it is a product of a specific institutional environment:
- Strict Information Disclosure: The SEC requires extremely detailed disclosure of financial reports and major events from listed companies, making it difficult for management to conceal true profitability long-term;
- Management Incentives Tied to Stock Price: Equity incentives are common, directly linking executive compensation to shareholder returns. Share buybacks and dividends have become important tools for management to demonstrate operational performance;
- Efficient Delisting Mechanism: Companies with sustained losses or poor governance are quickly marginalized or delisted by the market, forcing listed companies to pay attention to shareholder interests;
- Deep-Rooted Capital Discipline: Institutional investors and active funds frequently "vote with their feet." If management squanders cash, they often immediately face valuation penalties.
V. Four Practical Insights for Global Investors
After understanding the underlying logic of buybacks and dividends, retail investors can translate this knowledge into action as follows:
- Core Position Allocation to Broad Market Indices: Broad ETFs, such as those tracking the S&P 500, naturally benefit from a triple mechanism of "buybacks + dividends + weeding out weak performers," making them the preferred choice for long-term core holdings;
- Monitor Share Repurchase Authorization Announcements: New repurchase plans approved by the board often signal management's confidence in their own valuation and can serve as one reference signal for increasing holdings;
- Differentiate "Quality Buybacks": Buybacks funded by free cash flow are of higher quality, whereas those that rely on debt to boost stock prices hide risks and require comprehensive judgment based on the balance sheet;
- Make Good Use of Dividend Reinvestment: Activate the dividend reinvestment feature to allow compounding to continuously roll through market fluctuations; the longer the holding period, the more significant the effect.
Conclusion: Short-Term Focus on Sentiment, Long-Term Focus on Return Culture
The fourth-quarter market will be repeatedly disturbed by interest rate expectations and earnings results. However, when looking at a longer horizon, what determines the long-term returns of US stocks is the annual profit generation of hundreds of listed companies and the institutional inertia of them honestly returning profits to shareholders. For investors who are still hesitating about whether or not to invest in US stocks, the dual engine of buybacks and dividends may be the most convincing answer. The market will always fluctuate, but a market that has written shareholder interests into its DNA is worth trusting in the long run.
