Dividends and buybacks are starting to make a comeback after getting shrunk during the early pandemic market rout last year, says Credit Suisse’s chief US equity strategist Jonathan Golub, as noted in an article in Chief Investment Officer.

After earnings dropped 20% in early 2020 and companies responded by slicing payouts by 27%, earnings have surged back up by 32%. But with stock repurchases and dividends only increasing by a mere 1%, Golub predicts that corporate frugality to reverse over the next year or two, supporting higher stock prices. And, he adds, free cash flow has shot up even faster than profits.

Financial stocks have been off 45% since the pandemic started. While the Fed suspended buybacks for US Banks, it only capped dividends. Both restrictions have been lifted, but the banks have only seen a limited uptake, with Bank of America recently announcing a small ($25 billion) buyback.

The ongoing threat to buybacks is Congress, with Democrats looking to tax them more heavily in order to fund federal spending plans, the article concludes.