After years of prioritizing cash for share buybacks, companies cut spending on buybacks by 11% in 2016, according to Goldman Sachs’ David Kostin. Year-to-date, buybacks plunged by 20% versus last year and authorizations for new programs are proceeding at the slowest pace in five years.

As shown in the chart above, S&P 500 companies have authorized $146 billion in share repurchases year-to-date, a 15% drop from the comparable point last year and the slowest pace since 2012.

Investors lukewarm on repurchases

Reversing the pattern in recent years of rewarding firms that prioritized buybacks, investors are now penalizing companies that emphasize repurchases.

Goldman’s basket of stocks with the highest buyback yields is trailing the S&P by 250 basis points year-to-date (up 5% versus 7% for the broader market).

Names across all sectors with the highest “buyback yield,” or the repurchase of outstanding shares compared to the company’s market capitalization, are included in the basket. Top names include Yum! Brands (YUM) with an 18% buyback yield, Tyson Foods (TSN) with an 11% buyback yield, American Airlines (AAL) with a 17% buyback yield, Corning (GLW) with a 20% buyback yield and Weyerhaeuser (WY) with a 13% buyback yield.

In particular, Kostin explained that with the median S&P 500 stock trading at the 98th percentile of its historical valuation, concerns abound about repurchases at high valuations (under the assumption there would be better and lower buying opportunities at lower prices in the future).

“Within the intermediate term we expect firms will have the opportunity to repurchase shares at a lower multiple than today,” Kostin said, adding that trends in the use of corporate cash suggest that management teams also share this view.

Lower buyback spend

Kostin now predicts that buybacks will climb by only 2% in 2017 versus his previous forecast of a 30% jump.

Part of the original prediction for a large jump was based on the expectation for a tax plan this year that would allow a one-time tax on $2.5 trillion in cash currently overseas.

Trump’s tax blueprint revealed last week did include this so-called “repatriation proposal.” However, the rate was not specified and the timing remains unclear, especially given that details have not been worked out and negotiations with Congress are in early stages.

Goldman previously assumed S&P 500 companies would repatriate $200 billion of overseas cash in 2017 and spend $150 billion of that on share repurchases.

“The delay in tax legislation means firms will not augment cash allocated to buybacks until reforms are clear,” Goldman said.

Excluding repatriation, the firm’s prior estimate still assumed a more robust 5% buyback growth this year.

Dividends reign supreme

Instead, fund managers have embraced stocks growing their dividends, according to Goldman.

Firms with the highest expected dividend growth have outperformed. Goldman Sachs’ basket of high-dividend growth stocks has outperformed the S&P by 200 basis points year to date (9% vs 7%).

Goldman’s dividend growth basket includes names like Reynolds American (RAI), Valero Energy (VLO), AbbVie (ABBV), and Boeing (BA).

Nicole Sinclair is markets correspondent for Yahoo Finance.

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