At the Money: Shareholder Yield - The Big Picture

speaker1

Welcome to At the Money, where we explore the latest in investment strategies and financial insights. I’m Barry Ritholtz, and today we’re diving deep into the concept of shareholder yield. Joining me is Meb Faber, co-founder and CIO of Cambria Investments. Meb, let’s start with the basics. What exactly is shareholder yield?

speaker2

Hi, Barry! That’s a great question. From what I understand, shareholder yield is a measure that includes not just dividends, but also share buybacks and debt paydowns. It’s a more comprehensive way of looking at how companies return value to their shareholders. Am I on the right track, Barry?

speaker1

You’re absolutely on the right track, and you’ve hit the nail on the head. Shareholder yield is indeed a more holistic approach that looks at all the ways a company can return cash to its shareholders. It’s not just about dividends, but also about buybacks and reducing debt. This broader view can give investors a better picture of a company’s financial health and its commitment to shareholder value. Meb, why do you think companies that return cash to investors through these methods are attractive to investors?

speaker2

Hmm, I can see how that would be attractive. I mean, if a company is consistently returning cash to its shareholders, it suggests they have a strong cash flow and a good business model. But what about the specifics? How do dividends and buybacks compare in terms of their impact on shareholder value?

speaker1

That’s a fantastic question. Dividends and buybacks serve different purposes but are both important. Dividends provide a steady stream of income, which many investors, especially those in retirement, find very appealing. Buybacks, on the other hand, can be more tax-efficient and can increase the value of existing shares by reducing the number of shares outstanding. Historically, companies that do both have outperformed those that focus on just one method. Meb, what does the historical data show about the performance of shareholder yield strategies?

speaker2

That’s really interesting. I’ve heard that some value strategies have struggled in recent years, but it sounds like shareholder yield has held up well. How has it performed across different market caps? Is it more effective for large caps, small caps, or does it work universally?

speaker1

Great question. The beauty of the shareholder yield strategy is that it works across all market caps. Whether you’re looking at large caps, mid caps, or small caps, the performance has been consistently strong. In fact, in our research, we found that shareholder yield has outperformed traditional dividend strategies in almost every category. Meb, can you talk a bit about the geographical differences in shareholder yield? How does it play out in different regions like the U.S., Europe, and emerging markets?

speaker2

That’s a fascinating point. I can imagine that cultural and regulatory differences might play a role. For example, in the U.S., buybacks are more common, while in Europe and emerging markets, dividends might be more prevalent. How do these differences affect the overall performance of shareholder yield strategies?

speaker1

You’re absolutely right. In the U.S., buybacks have become a significant part of the shareholder yield equation, often making up a larger portion of the total yield. In Europe and emerging markets, dividends tend to be more common, but the overall yield is still very attractive. The key is that companies that are returning cash to shareholders, regardless of the method, tend to be of higher quality and have better financial health. Meb, can you discuss the valuation and quality aspects of shareholder yield? How does this strategy help investors identify undervalued, high-quality companies?

speaker2

That’s a great point. It seems like the focus on cash returns can serve as a quality filter, weeding out companies that might be struggling financially. But what about the investor side? Who is typically buying into these shareholder yield ETFs? Are they traditional value and dividend investors, or is the audience more diverse?

speaker1

That’s a great question. The typical buyer of shareholder yield ETFs is indeed a mix of traditional value and dividend investors, but it also includes a wide range of other investors. Advisors, institutions, and individual investors all find value in this approach. The key is that it offers a more efficient and effective way to capture returns, whether you’re focused on income or total return. Meb, any real-world examples of companies that have excelled with a strong shareholder yield strategy?

speaker2

I’d love to hear about some concrete examples. It would be great to see how this strategy plays out in practice. And what about the future? Where do you see shareholder yield going in the next few years?

speaker1

Absolutely. One great example is Apple, which has consistently returned cash to shareholders through both dividends and buybacks. This has helped the company maintain a high shareholder yield and has been a key driver of its long-term success. Looking to the future, I believe shareholder yield will continue to gain traction as investors seek more robust and diversified ways to capture returns. Meb, any final thoughts on the future of shareholder yield?

speaker2

It sounds like shareholder yield is here to stay and will continue to evolve. Thanks for sharing your insights, Barry and Meb. It’s been a fascinating conversation, and I’m sure our listeners have learned a lot. Where can they find more information about shareholder yield and your ETFs, Meb?