Total yield ETFs

Dividend payments were once considered the dominant source of equity income. However, as share buybacks have grown in prominence, and also gone global, investors are increasingly taking a broader view of how shares deliver income. Jeremy Raccio and Jie Song explain why total yield strategies are gaining ground.

Investors and corporate management teams used to be well aligned in terms of income preferences. On the one hand, companies generally preferred to return cash to shareholders via dividends and, on the other, investors happily pocketed the payouts to help service their income needs.

While the defensive qualities of dividend-paying stocks, as well as the ballast effect of steady income payments, still appeal to many, corporate behavior is changing. Investors screening the world’s companies purely on distributed dividend yield now overlook a growing share of total capital return across many major markets.

Share buybacks are a prime example. In the US, repurchases have overtaken dividends as the dominant form of shareholder return. Global buybacks reached a record USD 1.46 trillion in 2025, up more than eight percent from the previous year. US companies alone account for some USD 1.04 trillion, roughly 71 percent of the total.¹ The momentum shows little sign of fading, with Goldman Sachs expecting US firms to repurchase around USD 1.4 trillion of shares again in 2026, more than enough to absorb new equity issuance.²

Indeed, dividends and buybacks are simply two ways of returning capital to shareholders. A dividend pays cash directly, while a buyback does so by reducing the share count. And yet the market treats the two very differently. Dividends are sticky and heavily signaled, so managements tend to be reluctant to cut them. Buybacks, however, are more flexible, can be more tax-efficient³ and increasingly the tool of choice for companies that want to return capital without committing to a permanent payout.

As a result, dividend yield and shareholder yield have drifted apart, and the gap is often widest among exactly the high-quality, cash-generative businesses that income investors say they want to own.

For years this was largely a US story. However, announced European buybacks reached a record EUR 85.7 billion in the first two months of 2026, a pace above the previous record.⁴ Corporate boards in Europe, and increasingly in Japan following successive waves of governance and capital-efficiency reform, are treating repurchases as a mainstream instrument.

The shift reflects a durable change in how boards think about returning surplus capital, and it is broadening the opportunity set for anyone willing to look beyond dividends. Many investors have also turned to option overlay strategies for extra income. But that income tends to come at a price, capping upside participation when equity markets run hard.

Investment strategies are adapting. Total-yield frameworks, for example, combine dividend yield and net buyback yield into a single measure of how much capital a company is genuinely returning to its owners, treating buybacks as a first-class source of shareholder return rather than an afterthought to the dividend.

The approach is arguably better aligned with corporate behavior today than any dividend-only approach. It also carries a quality dimension, as companies capable of sustaining both dividends and buybacks tend to be those with durable cash flows and disciplined balance sheets, and measures such as return on equity and payout ratios help separate repeatable capital return from one-off gestures. A repurchase funded by an exhausted, one-time authorization is not the same signal as a consistent, self-funded program. And it takes a sound investment process to tell them apart.

There is a second, subtler problem with conventional income strategies, one that concerns the opportunity cost to investors. Many equity income products are deliberately defensive, running betas well below one. Layer on a traditional covered-call overlay, which sells upside to generate premium, and the strategy can, depending on design, meaningfully reduce participation in exactly the rising markets that build long-term wealth. Investors end up financing their income by sacrificing some level of capital growth.

This could, however, be something of a false dichotomy. After all, income and market participation are not mutually exclusive. And an approach holding its market exposure close to one, rather than defaulting to a defensive profile, has the potential to preserve the equity upside. Put another way, where derivatives are used to enhance income, they can be structured to help keep net market exposure stable rather than letting it fall away as markets rise.

Conventional investment wisdom holds that investors should regularly review their assumptions as the evidence changes. With this new economic and corporate reality in mind, looking only at dividends now means ignoring a large and growing part of the picture.

For equity income investors, that means measuring shareholder yield more fully, combining dividends with buybacks, casting the net globally rather than region by region and refusing to accept diminished growth as the inevitable cost of drawing an income from a portfolio. This type of thinking shapes how we approach equity income.

¹ ‘Buyback Watch’, Capital Group Global Equity Study, 2026.
² ‘Goldman Sachs sees a USD 1.4 trillion buyback wave outpacing US equity supply in 2026’, Yahoo Finance, 15 August 2026.
³ This cannot be considered as tax advice. Investors should seek advice from their own tax advisers based on their individual facts and circumstances.
⁴ Record Stock Buybacks in Europe Make It Even Better Pick Than US, Bloomberg Markets, 27 February 2026.

Code: C-09/26 M-006818 M-006819