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Dividends First Cut Stocks

Stocks With the Highest Shareholder Yield

Shareholder yield combines both dividend yield and the buyback yield into a single measure. We identify the 20 stocks with the highest shareholder yields.

by Charles Rotblut | October 2019

Charles Rotblut leads a class in AAII's new Essential Investing Video Course. Go to https://www.aaii.com/ves for more information and to subscribe.

One theory of valuation is that a stock is worth the cash it distributes to shareholders.

Most often these distributions are thought of as being dividends. A dividend is a payment of cash to every shareholder proportionate to the number of shares they own.

Dividend yield—calculated by dividing the indicated dividend by the current stock price—can be used as a valuation indicator. Higher yields are associated with cheaper valuations and lower yields are associated with more expensive valuations.

A company can also return cash by repurchasing its stock. Though cash is only directly received by shareholders who sell their shares directly back to the company, buybacks reduce the number of shares outstanding, thereby increasing the ownership interest each remaining share represents. The impact of share repurchases is measured through the buyback yield: The change in the average number of outstanding shares for the most recently reported quarter relative to the average number of outstanding shares for the same quarter a year ago.

Shareholder yield combines the two into a single measure. It is calculated by adding the dividend yield to the buyback yield. The larger the shareholder yield, the more cash a company is returning to shareholders through dividends and/or buybacks on a relative basis.

This First Cut identifies the 20 U.S. exchange-listed stocks with the highest shareholder yield. All 20 are profitable and are expected to be profitable for their current fiscal year. We set an upper limit on the payout ratio of 90% to ensure earnings are in excess of the dividend payment, if one was paid. Since shareholder yield does not require a dividend be paid, we purposely did not exclude non-dividend payers from consideration.

Be sure to examine the company’s financial condition before buying to ensure it is able to continue returning capital to shareholders and otherwise has traits that would suggest a higher future price is warranted.

—Charles Rotblut, CFA, AAII Journal editor

Discussion

Jane from FL posted over 6 years ago:

Interesting article and chart. I'd like to see a quarterly, or even better a monthly chart like that. Sure gives one a lot of good options to research!


Hugh from WA posted over 6 years ago:

Would it be fair to say Buyback Yield is backward-looking and Dividend Yield is forward-looking? I should think significant Buybacks would only be occasional but Dividends can easily continue as long as the company makes money.


Richard from FL posted over 6 years ago:

Hugh is absolutely correct. What is the highest shareholder stock list based on div/yields w/o buybacks?


Ms. Sneha Joshi from VA posted over 6 years ago:

Hi! I tried some number crunching on the evening of 10/14/2019 starting with the aforesaid 20 Stocks in the following sequence.... 1) All these 20 Stocks were subjected to TipRanks Smart Score when only 8 Stocks out of 20 had a Score of 8 & above (Out-performers). 2)All these 8 Stocks were subjected to 'OPTIMIZATION' in the process, only 4 Stocks got thru [TipRanks Smart Score shown in ( )] and they are >> QCOM (9), SNBR (10), ADES (10)and NRG (10). 3)Hypothetically If suppose USD 100 is invested in the following proportion in only these 4 Stocks i.e. QCOM = 23.06%, SNBR = 8.29%, ADES = 59.25% & NRG = 9.40% Altogether 100%. Then From January 2018 till now the CAGR works out to a decent 34.90& and Expected Return would be 38.24% going forward...{E.& O.E.} I appeal learned members to cross check / verify the same and kindly post your comment for the benefit of all. Thanks & Regards! Prakash Joshi On behalf of my daughter Sneha (Member AAII)


Fred from FL posted over 6 years ago:

So, if there's an increase in the average number of shares out in the most recent quarter, compared to the corresponding quarter in the previous year, would the shareholder yield be higher than if there is a decrease in the number of shares out?


David from Utah posted over 6 years ago:

As a stockholder over the last 30+ years, I've never been offered a buyback by a company. So what's the actual mechanism for buybacks and who truly benefits??


Joe from Texas posted over 6 years ago:

In Table 1 why doesn't Payout Ratio TTM = (Share Price * Div Yield)/EPS TTM after accounting for percent etc.?


John from Ohio posted over 6 years ago:

The *reason* for company buybacks need to be investigated thoroughly. Hyper-low interest rates have provided Corporate officers with hedging opportunities that benefit them, but not necessarily the company or its shareholder.


Tom from FL posted over 6 years ago:

I am intrigued by Ms. Joshi's response. I would like to ask Ms. Joshi how she arrived at those percentage allocation of those 4 stocks (eg. QCOM = 23%) ? Thanks for everyone's response!


Claude from GA posted over 6 years ago:

In answer to David from Utah I might explain that (1) buybacks refer to a corporation buying from some of its shareholders some of the shares the corp. sold when it first issued them, (2) most buybacks consist of anonymous market buys in an ongoing market where would-be sellers offer shares and your secret buyer is the corporation, (3) some buybacks (infrequently) consist of tender offers in the nature of auctions. All the stockholders who don't sell generally benefit if the shares go up in price. Warren Buffett has made many wise comments about buybacks.


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