Dividend stocks have historically been a great way for investors seeking another avenue for yields and value, but there is more than one way to gain exposure to companies that redistribute their cash to shareholders.
In the upcoming webcast, The Case for Shareholder Yield in Portfolios, Meb Faber, Co-Founder and CIO, Cambria Investment Management, will outline the direct and indirect methods that companies can potentially use to distribute cash to shareholders, and the metric commonly referred to as “shareholder yield.”
Cambria offers a line of shareholder yield ETFs, including the Cambria Shareholder Yield ETF (NYSEArca: SYLD), Cambria Emerging Shareholder Yield ETF (EYLD) and Cambria Foreign Shareholder Yield ETF (FYLD).
The underlying indices consist of stocks with high cash distribution characteristics and are comprised of the companies with the best combined rank of dividend payments and net stock buybacks, which are the key components of shareholder yield. Additionally, the underlying indices also screen for value and quality factors, including low financial leverage.
Instead of just focusing on dividend payments alone, the shareholder yield ETF strategies invest stocks that couple strong dividend payments with share repurchases and debt paydown. The fund manager believes that this type of screening process may be a better way to identify stocks that possess strong cash flows and that have the potential to reward shareholders with higher yields.
According to Cambria, share repurchases have outpaced dividends. Robert Shiller, in his book Irrational Exuberance (2009), showed that over the past 70 years, companies have continued to pay a lower and lower percentage of their earnings in cash dividends. Due to tax treatment and regulatory changes in the 1980s, U.S. companies have shifted their payout mix to include more share buybacks. According to Jeremy Schwartz, in his February 2012 “Investment Insights” paper, seven out of the ten S&P 500 sectors in 2011 offered a higher yield resulting from share repurchases than resulting from cash dividend payments.
Financial advisors who are interested in learning more about yield-generating strategies can register for the upcoming Tuesday, July 23 webcast here.