Shareholder yield, a concept that includes cash dividends, share buybacks, and debt paydowns, has gained popularity as a more comprehensive measure of how companies reward their investors. While dividends have traditionally been the main way for shareholders to receive returns on their investments, the shift towards share buybacks as a tax-efficient method of distributing earnings has become more common. Companies like PayPal have eschewed dividends in favor of buying back shares to boost share prices and provide returns to shareholders.
The shareholder yield formula takes into account changes in debt, with paydowns being considered a positive factor and increases in debt as a negative. This comprehensive approach to measuring shareholder yield can provide a more accurate picture of a company’s financial health, as demonstrated by examples like Sears and Bed Bath & Beyond, which suffered financial troubles after implementing debt-financed share buyback programs.
Companies with a high shareholder yield are typically mature businesses with limited opportunities for reinvestment, while those with a low yield may be investing heavily in infrastructure or holding onto cash for future opportunities. The shareholder yield can vary based on a company’s specific circumstances, such as their price-to-earnings ratio, investment in plant and equipment, or cash flow from operations.
Investors looking to capitalize on shareholder yield can consider exchange-traded funds like Cambria Shareholder Yield, which focuses on companies that reward shareholders through multiple avenues, including dividends, buybacks, and debt paydowns. This approach has delivered higher returns over the past decade compared to funds that focus solely on traditional dividend yield. Ultimately, the comprehensive definition of shareholder yield offers investors a more holistic view of how companies are rewarding their shareholders and can be a useful tool in identifying valuable investment opportunities.
