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The top company in the S&P 500 for shareholder yield is generic drugmaker Viatris.
Courtesy of Viatris
When it comes to picking the stocks that treat their investors the best, don’t rely on dividend yield alone.
Case in point: The highest dividend yield in the
S&P 500
these days belongs to
Altria Group
(ticker: MO), maker of Marlboro cigarettes, with an 8.4% yield. That’s a hefty payout, even relative to the more attractive bond yields on offer these days. But there’s more to cash returns than just the dividend, such as buybacks and debt paydowns, which increase the share of a business’ value that accrues to equity holders. Together, they’re known as shareholder yield.
Altria does a pretty good job of returning cash to shareholders. Its quarterly dividend payments come in at about $6.8 billion a year, while it also spent some $1.8 billion on share buybacks in 2022 and reduced its net debt by close to $1.1 billion. Add it up, and Altria returned $9.7 billion to shareholders last year, versus Altria’s current market capitalization of $80.5 billion—good for a trailing shareholder yield of 12%.
Still, Altria is hardly among the top companies in the market ranked by shareholder yield. Excluding many regional banks—which are unlikely to repeat last year’s buybacks given the sector’s recent turmoil—the top company in the S&P 500 for shareholder yield is
Viatris
(VTRS), the generic drugmaker formed by the merger of Mylan and
Pfizer
’s
(PFE) Upjohn unit in late 2020, according to data from Bloomberg and adjusting for mergers or other unique situations.
Viatris has a trailing shareholder yield of a whopping 33%, by Barron’s math. It hasn’t bought back any stock over the past year, and it sports a dividend yield of 4.9%, but it has reduced its debt by about $3.3 billion in the past year—28% of Viatris’ market value of around $11.3 billion.
Other stocks in the S&P 500 with trailing shareholder yields above 20% include
Marathon Petroleum
(MPC),
Valero Energy
(VLO),
DuPont de Nemours
(DD),
Humana
(HUM), and
Centene
(CNC).
Why shareholder yield? Meb Faber, chief investment officer of Cambria Investment Management and an evangelist for the metric, notes that it helps avoid companies that offer large amounts of stock-based compensation and take on a lot of debt, particularly to buy back shares, something that was very popular in the tech sector over the past cycle. “Historically, that’s horrible for investors,” he says.
Faber’s actively managed exchange-traded fund,
Cambria Shareholder Yield
(SYLD), adds some valuation discipline, a momentum factor, and other criteria to the equation. It is rebalanced quarterly, charges a 0.59% annual fee, and holds about 100 mostly large- and mid-cap stocks, including
Ryerson Holding
(RYI), with a 26.4% shareholder yield;
Veritiv
(VRTV), at 32.7%; and
CVR Energy
(CVI), at 19.9%.
The ETF has returned 71% over the past three years, versus a 38% return for the S&P 500—though it is lagging well behind the index this year with a return of just 0.7%. Many of the 2023 market leaders aren’t big cash-return types of companies, after all.
They’ll sure come in handy, though, if the stock market turns.
Write to Nicholas Jasinski at [email protected]
Source: https://www.barrons.com/articles/why-shareholder-yield-is-better-than-dividend-yield-53cf9f39?siteid=yhoof2&yptr=yahoo