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Stock-Buyback Tax Seen Boosting Dividends, Fueling Credit Risk

Aug. 10, 2022, 6:11 PM

Tax changes working their way through Congress may ultimately boost dividend payments and erode cash flow, boosting credit risk for US investment-grade companies.

A 1% excise levy on share buybacks -- part of a tax and climate package -- has passed the Senate and will head to the House for a vote later this week. It applies broadly to investment-grade companies that do large share buybacks, according to strategists.

The tax could shift preferences at the margin from buybacks, which are more temporary, to dividend payouts, which tend to be more sustained, said Keith Parker, an equity strategist ...