When discussing the long-term appeal of US stocks, investors often focus on depth and liquidity, transparent information disclosure, and the emergence of innovative companies. However, if the timeline is extended to decades, a more subtle yet enduring force supports the return curve of US stocks: the shareholder return culture. The "dual pillars" of dividends and buybacks are one of the key reasons why US stocks have been able to outperform most global markets over the long term and continuously attract international capital. Understanding this is an indispensable part of answering "Why US stocks?"
Shareholder Return Culture: The Underlying DNA of the US Market
Shareholder return culture refers to the practice of listed companies treating the "continuous and predictable return of cash to shareholders" as one of the core objectives of capital allocation, rather than indefinitely retaining profits within the company. In the US market, this culture is not a product of regulatory mandate but a business convention formed through decades of market competition and the voting actions of institutional investors.
The shareholder returns in US stocks are mainly composed of two paths: cash dividends and stock buybacks. Both complement each other, forming a "cash contract" between the listed company and the investor.
Cash Dividends: The Foundation of a Mature Market
Dividends are the most traditional form of return. The dividend ecosystem of US stocks has several distinct characteristics: first, broad coverage; the vast majority of companies in the S&P 500 maintain a dividend record; second, emphasis on continuity; many companies aim to increase dividends year over year, and the market has even formed a group of "dividend aristocrats"—high-quality companies that have increased dividends for over 25 consecutive years; and third, a deep link between dividends and free cash flow. Investors tend to test the sustainability of dividends using metrics like payout ratio and cash flow coverage ratio, rather than just looking at book profits.
Stock Buybacks: A Unique Weapon of American Capital Operations
Buybacks are one of the most significant distinguishing features of US stocks compared to other markets. Listed companies use their own cash to repurchase shares in the secondary market and cancel them, which reduces the outstanding share capital and consequently increases earnings per share and intrinsic value per share. For management, buybacks are more flexible than dividends; once a dividend is raised, it is difficult to reverse, whereas buybacks can be decided based on valuation levels and cash flow rhythm. For shareholders, buybacks are both a tangible return and a signal from management that they "believe the stock price is undervalued."
In terms of volume, over the past decade, the amount of funds returned to shareholders by US listed companies through buybacks and dividends has reached the trillion-dollar level annually, with buybacks consistently holding the largest share. This scale is unmatched in major global markets, forming a stable and massive long-term demand side for US stocks.
Why Buybacks Are Called the Market's "Invisible Engine"
* Continuous Enhancement of Per-Share Value: Share cancellations directly reduce share capital; even if the company's total profit remains unchanged, earnings per share will be passively increased, providing a compounding support for valuation in the long run.
* A Cushion During Volatility: Large companies generally have systematic buyback plans that provide a supporting force when the market corrects or selling pressure increases, objectively smoothing volatility and providing a safety net for investor sentiment.
* Externalization of Capital Discipline: When management treats "returning money to shareholders if there are no better investment opportunities" as the default option, behaviors like blind diversification and inefficient M&A—the "empire building"—are inhibited, leading to an overall improvement in capital allocation efficiency.
Linkage between Governance and Compensation: Incentive plans for many executives in US stocks are tied to metrics such as earnings per share and total shareholder return, giving management a strong incentive to benefit shareholders through buybacks and dividends.The Leading Companies' Demonstrative Effect
The culture of shareholder returns is most fully embodied in leading US companies. Large technology firms, such as Apple, have long ranked among the top global buyback programs, converting massive free cash flow into shareholder returns through a "buyback + dividend" combination. Large banks and insurance companies in the financial sector also regularly pay dividends and conduct buybacks after meeting regulatory capital requirements. The demonstration by the two major sectors, technology and finance, has created a positive competition among industries—companies that do not return value to shareholders often face valuation discounts and loss of influence in the capital market, and this pressure, in turn, solidifies the return tradition of the entire market.
Horizontal Comparison: An Advantage US Stocks Cannot Easily Replicate
Compared to US stocks, other major markets generally lag in shareholder returns. Listed companies in some markets are more accustomed to an operating model of high retention and low returns, with cash sitting idle or being invested in low-efficiency projects. In some markets, although dividends are substantial, the flexible tool of buybacks is lacking, and there is no self-correction mechanism for market undervaluation.
What is special about US stocks is the dual constraint of system and culture: the influence of institutional investors, an active M&A market, the short-selling mechanism, and the proxy voting system all exert external pressure on "sluggish, inefficient capital"; while the return tradition formed over decades makes returning value to shareholders the default option in corporate operations. The superposition of these two forces has turned shareholder returns from an "option" into a "must-answer question," which is one of the deep logics behind global capital continuously favoring US stocks in asset allocation.
How Retail Investors Can Leverage This Advantage
Anchor on Free Cash Flow: To judge a company's return capability, first look at the free cash flow after subtracting capital expenditures from operating cash flow, and then assess whether there is sufficient surplus to cover dividends and buybacks.Distinguish Good Buybacks from Bad Buybacks: Buybacks during periods of low valuation create value, whereas buybacks funded by financing when stock prices are high can destroy value; a comprehensive judgment must be made in conjunction with the valuation level.Focus on the Sustainability of Dividend Growth: Companies that consistently increase dividends over many years, rather than those with a one-time high dividend, better demonstrate the resilience of the business model and the reliability of corporate governance.Beware of Debt-Driven Returns: Short-term earnings beautification achieved by increasing leverage is unsustainable; the health of the balance sheet must always be the priority.Incorporate into a Long-Term Allocation Framework: For retail investors, focusing on broad market indices or dividend growth strategies that emphasize shareholder return quality is a low-barrier way to share in this positioning.Conclusion
Market depth, liquidity, and the innovative ecosystem are evident advantages of US stocks, but what truly navigates bull and bear markets is often hidden in more fundamental details: companies year after year return cash to shareholders, building a moat of trust through real money voting. For investors pondering "why US stocks," the shareholder return culture is an indispensable piece of the puzzle. Of course, buybacks and dividends are only part of the long-term return; valuation levels, earnings cycles, and the macroeconomic environment are equally critical, so investors should rationally plan asset allocation based on their own risk tolerance.
