MMasters in Business
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30 October 2024

At the Money: Getting More Out of Dividends with Shareholder Yield

2Frameworks
6Insights

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Frameworks in this episode

Strategy6 steps

Five-Lever Corporate Cash Allocation Menu

Allocate company cash to the lever offering the highest expected return

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Finance5 steps

Shareholder Yield

Measure the total cash a company returns after accounting for dilution

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Insights & moments

The myth-busts, hot takes, explainers, and tools worth keeping.

Myth Buster· 2

Myth Buster02:45

Why Dividend Investors Miss More Than Half the Cash Picture

Corporate payout practices changed substantially beginning in the 1980s and accelerating in the 1990s. Buybacks overtook cash dividends, so a dividend-only strategy now ignores a major way companies distribute capital.

  • Buybacks became increasingly important after the 1980s
  • Annual buybacks have exceeded dividends in the modern period described
  • Dividend-only screens omit a major payout channel
  • Structural market changes can make traditional metrics incomplete

“investors that focus only on dividends historically now miss over half of the picture on how companies distribute their cash.”

Meb Faber · 03:16
#dividends#buybacks#market history
Myth Buster08:02

Reframe Buybacks as Flexible, Tax-Efficient Dividends

Faber argues that much of the hostility toward buybacks comes from framing them incorrectly. Viewing repurchases as flexible or tax-efficient dividends clarifies their economic role, while valuation still determines whether a specific repurchase creates value.

  • Buybacks are another mechanism for returning capital
  • Repurchases offer more flexibility than recurring dividends
  • Tax treatment can make buybacks efficient
  • Repurchasing cheap shares can increase value for continuing owners

“if you frame buybacks simply as tax efficient dividends or flexible dividends, it changes your entire perspective across all of this”

Meb Faber · 08:05

“On average, if a stock is cheap, a buyback is a great use of cash.”

Meb Faber · 08:32
#buybacks#tax efficiency#valuation

Hot Take· 1

Hot Take09:43

Why Cash Payouts Can Screen Out Emerging-Market Waste

Faber presents high cash payouts as a quality signal in markets where investors may distrust corporate reporting or governance. A company returning a meaningful portion of its market value must generate and release real cash instead of consuming it through wasteful projects or executive perks.

  • Cash distributions provide evidence that cash exists
  • Payouts reduce funds available for wasteful spending
  • The strategy can address some governance concerns
  • High shareholder yield can function as a quality filter

“If your company that paying out ten percent of your market cap and dividends or buying back shares, you know what you're not doing with…”

Meb Faber · 09:56

“You have to have the cash to be able to pay it out.”

Meb Faber · 10:13
#emerging markets#governance#quality investing

Explainer· 2

Explainer07:15

How Payout Culture Differs Between US and Overseas Markets

The composition of shareholder payouts varies by geography. US companies lean more heavily on buybacks, while developed and emerging markets have historically used a more balanced mix of dividends and repurchases, although countries such as Japan are shifting.

  • US shareholder yield is more buyback-heavy
  • Foreign payouts are described as closer to an even split
  • Overseas markets can offer higher visible dividend yields
  • Japan is increasing its focus on buybacks

“The US is very corporate buyback focus, so the majority of the shareholder yield in the US comes from the buyback yield.”

Meb Faber · 07:30

“You're seeing in particular countries like Japan really start to ramp up their buy back focus.”

Meb Faber · 07:55
#international investing#dividends#buybacks#japan
Explainer10:22

The Sector Trade-Off Inside Shareholder-Yield Portfolios

Shareholder-yield portfolios can differ sharply from capitalization-weighted benchmarks. In the US they currently tilt toward financials and energy while holding less technology, reflecting both high technology valuations and share issuance; emerging-market technology can still qualify when valuations and payouts differ.

  • US portfolios tilt toward financials and energy
  • US technology exposure can be low
  • High valuations and share issuance reduce technology eligibility
  • Emerging-market technology can carry high shareholder yield

“This tends towards sectors like financials and energy, and that's true across all the geographies currently.”

Meb Faber · 10:25

“Part of that is the tech companies are expensive, and they also are doing a lot of share issuance”

Meb Faber · 10:40
#sector allocation#technology#financials#energy

Takeaway· 1

Takeaway05:22

A Robust Factor Should Travel Across Markets and Company Sizes

Faber says shareholder yield has worked across large-cap, small-cap, foreign, and emerging-market stocks, as well as over long historical periods. He treats this portability as an important test of whether an investment factor is credible rather than an artifact of one dataset.

  • The historical results extended beyond one market-cap segment
  • The approach was reported to work internationally
  • Cross-market consistency strengthens confidence in a factor
  • A strategy failing in another major market deserves skepticism

“It worked in large cap, it worked in small cap, it worked in foreign and worked in emerging.”

Meb Faber · 05:48

“If it works in US but not in Japan, that's problem. If it works in small cap but not large cap, that's a problem.”

Meb Faber · 06:00
#factor investing#global equities#backtesting