When it comes to choosing stocks that best treat their investors, don’t rely solely on dividend yield.
Example: the highest dividend yield of the
these days belongs to
(ticker: MO), manufacturer of Marlboro cigarettes, with a yield of 8.4%. That’s a big gain, even compared to the more attractive bond yields on offer these days. But cash returns are not limited to simple dividends, such as buybacks and debt repayments, which increase the share of a company’s value that accrues to shareholders. Together they are known as shareholder return.
Altria does a very good job of returning money to shareholders. Its quarterly dividend payouts are around $6.8 billion a year, while it also spent some $1.8 billion on stock buybacks in 2022 and reduced its net debt by almost 1. $1 billion. Add it up and Altria returned $9.7 billion to shareholders last year, compared to Altria’s current market capitalization of $80.5 billion, which is good for a shareholder return of 12%.
Yet Altria hardly ranks among the best companies in the market ranked by shareholder return. Excluding many regional banks – which are unlikely to repeat last year’s buyouts given recent industry turmoil – the top S&P 500 company for shareholder return is
(VTRS), the generic drug maker resulting from the merger of Mylan and
(PFE) Upjohn unit at the end of 2020, based on Bloomberg data and taking into account mergers or other unique situations.
Viatris has a shareholder return of 33%, Barrons math. It hasn’t repurchased any shares in the past year and has a dividend yield of 4.9%, but it has reduced its debt by about $3.3 billion in the past year, or 28% of Viatris’ market value, which is approximately $11.3 billion.
Other S&P 500 stocks with shareholder returns above 20% include
DuPont de Nemours
Why shareholder return? Meb Faber, chief investment officer of Cambria Investment Management and metrics evangelist, notes that this helps avoid companies that offer large amounts of stock-based compensation and take on a lot of debt, especially to buy back shares, which which was very popular in the technology sector during the last cycle. “Historically, it’s horrible for investors,” he says.
Faber’s actively managed exchange-traded fund,
Cambria Shareholder Return
(SYLD), adds valuation discipline, momentum factor and other criteria to the equation. It is rebalanced quarterly, charges an annual fee of 0.59% and holds about 100 stocks, mostly large and mid caps, including
(RYI), with a shareholder return of 26.4%;
(VRTV), at 32.7%; And
(CVI), at 19.9%.
The ETF has returned 71% over the past three years, compared to a 38% return for the S&P 500, although it is far behind the index this year with a return of just 0.7%. After all, many of the market leaders in 2023 are not big cash yielding companies.
They will certainly come in handy, however, if the stock market turns.
Write to Nicholas Jasinski at email@example.com