By Al Root

Income investors are likely familiar with the Dividend Aristocrats. It's time for them to take notice of the Buyback Aristocrats too.

The Dividend Aristocrats are companies that have raised their dividend for at least 25 consecutive years. They aren't the stocks with the highest payouts -- we leave those to troubled companies like LyondellBasell, United Parcel Service, and Pfizer, which yield 6.7% or more as investors weigh growth or earnings concerns -- but quality companies with earnings growth, stable cash flow, and prudent management. There are 69 such stocks in the S&P 500, including Walmart, Coca-Cola, and Exxon Mobil, and they yield an average of 2.6%, while trading for an average 23 times 2026 earnings estimates.

A focus only on dividends, however, misses the other important part of the capital-return equation -- stock buybacks. But they have to be the right kind of buybacks, the kind that shrinks share count, leaving shareholders with a bigger piece of the company.

Such stocks are getting harder to find.

S&P 500 companies repurchased shares at a record rate during the first half of 2025, notes Goldman Sachs equity strategist Ben Snider, but the "net buyback yield" dropped to its lowest level in two decades. That means share issuance was eroding the value of buybacks at a faster rate than in the past.

Goldman identified 54 Buyback Aristocrats, companies that have decreased their share counts by at least 1% a year for nine of the past 10 years. They include household names such as Visa, Apple, and American Express. While their payouts aren't as high as the Dividend Aristocrats -- they yield 1.7% -- they are cheaper, at 17 times earnings. Their total shareholder yield -- buybacks plus dividends -- is north of 4%, roughly one percentage point higher than the dividend-centric group. To realize income, investors can sell a little bit of their stock to generate cash without incurring additional expenses because long-term capital gains and qualifying dividends are taxed at the same rate.

The buyback-centric stocks have another advantage: investor interest. While the average Dividend Aristocrat has barely managed a positive return over the past 12 months, the average Buyback Aristocrat has returned about 17%, narrowly outpacing the S&P 500.

Yet the stocks have a couple of problems over their dividend-focused cousins. Dividends are essentially mandatory, while buybacks are a discretionary use of cash flow -- there is no guarantee that repurchases continue apace in an economic downturn, spoiling part of the investment case for income-seeking investors. There is also the potential problem of using cash to buy stocks with inflated valuations, which isn't an issue for this group as a whole but may be for a few of its members.

Looking at the most popular Buyback Aristocrats can help you avoid the big losers. Of Goldman's 54 stocks, the 12 with the highest Buy-rating ratios among Wall Street analysts are insurers Assurant, Globe Life, and MetLife; TJ Maxx operator TJX Cos.; auto-parts retailers AutoZone and O'Reilly Automotive; Visa; drug distributor McKesson; banks Citizens Financial Group and Bank of America; electronics maker Jabil; and luxury clothier Ralph Lauren.

The average Buy-rating ratio for the 12 is about 81%, well above the 55% for the average stock in the S&P 500. The dozen names have returned about 36% over the past 12 months, while yielding an average of 1.4% and trading for about 18 times estimated 2026 earnings.

They are working well, which means investors don't have to pile into beaten-up, higher-yielding contrarian ideas that have been underperforming to get some income. The Buyback Aristocrats allow investors to get some income cake and eat it too.

Write to Al Root at allen.root@dowjones.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

October 08, 2025 16:19 ET (20:19 GMT)

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