Shareholder yield goes beyond just quarterly dividend payouts. It encompasses three ways to enrich shareholders: cash dividends, share buybacks, and debt paydowns. This comprehensive measure is calculated by dividing the money spent on these components by the market capitalization.
Companies that rely solely on dividends may be outdated as dividends are becoming less popular. Moreover, companies borrowing money to pay dividends are not penalized under this traditional measure. Shareholder yield addresses these shortcomings by incorporating debt paydowns and net share purchases.
Share buybacks have become a popular alternative to dividends due to their tax efficiency. Companies are increasingly buying back shares to distribute earnings to shareholders. However, a comprehensive yield formula is necessary to account for changes in funded debt. This formula considers paydowns as a positive and increases in debt as a negative.
High shareholder yield is typically seen in mature companies that lack opportunities for reinvestment. On the other hand, low shareholder yield may result from a high price-to-earnings ratio, heavy investments, or cash stockpiling. It’s essential to consider all three elements of yield when evaluating companies that reward shareholders.
In conclusion, the comprehensive definition of yield offers a more holistic view compared to the traditional dividend-only measure. Investors can consider exchange-traded funds like Vanguard High Dividend Yield and Cambria Shareholder Yield, which focus on different aspects of yield to maximize shareholder rewards.