Investors shouldn’t solely rely on dividend yield, and should also be paying attention to shareholder yield, contends an article in Barron’s. Shareholder yield includes things that increase a company’s value to equity holders, such as buybacks and debt pay downs.
Looking at dividend yield alone, the highest payout comes from Altria Group, the maker of Marlboro cigarettes, at 8.4%. And while Altria does return about $9.7 billion yearly in cash to its shareholders, including a shareholder yield that factors in $1.8 billion in buybacks last year and reducing its debt by nearly $1.1 billion, it’s not anywhere near the top range of companies that offer significant shareholder yield. Indeed, the number one spot for shareholder yield in the S&P 500 is generic pharmaceutical company Viatris, which offers a substantial trailing shareholder yield of 33%, according to Barron’s. Though it didn’t buy back any of its stock in the last year, and pays out a dividend yield of 4.9%, it lowered its debt by roughly $3.3 billion over the last 12 months.
Shareholder yield is important because it helps investors avoid companies that uses stock-based compensation and accrue significant debt, often for stock buybacks. “Historically, that’s horrible for investors,” Meb Faber of Cambria Investment Management told Barron’s. His actively-managed ETF, Cambria Shareholder Yield, factors in valuation discipline and momentum to their metric and holds about 100 stocks, mainly large- and mid-cap. The fund rebalances every quarter and has returned 71% over the last 3 years, indicating that a lot of this year’s winners aren’t relying on cash dividends but rather shareholder yield—something that could be handy if the market declines. Meanwhile, Marathon Petroleum, Valero Energy, DuPont de Nemours, Humana, and Centene are a few of the other S&P 500 companies with trailing shareholder yields over 20%, the article highlights.
