Dividend-themed ETFs have been all the rage with investors looking to boost income in stocks rater than bonds. Meanwhile, an ETF focused on companies that are buying back their shares has outperformed the market by a wide margin.
Now, new research suggests that combining dividend and buyback strategies could result in a powerful and winning combination for ETF investors.
Chris Brightman is head of investment management at Research Affiliates, which manages indices that are used in PowerShares ETFs and Schwab mutual funds. He thinks stocks with the highest “total yield” – the added percentage of shares repurchased to the dividend yield percentage – are the best buys on the market, reports Shawn Tully for CNNMoney.
Brightman does not believe that dividends is the sole metric, so instead he looks at a value-oriented methodology that screens for dividends and the impact of stock buybacks.
Theoretically, if a company reduces its number of shares, for example by 1%, while keeping profits and the price/earnings ratio stable, the stock should see an increase of 1% in share price, he reasons.