Two ETFs And Screening For Cash To Shareholders

With corporate profits at record highs, companies awash in cash still aren’t rushing to reinvest in their operations in the form of capital expenditures.

Instead, returning said cash to shareholders continues to be a popular capital allocation move. S&P Capital Dow Jones Indices reported that dividend payouts from S&P 500 companies increased 15.5% in the second quarter. And preliminary second quarter stock buyback data shows an 18% rise in repurchases.

To be fair, most of the repurchase activity was from Apple (AAPL). Subtract Apple’s epic buybacks, $16 billion during the second quarter, from the equation and buyback activity for the index grew just 2%. That’s actually encouraging news. While Apple’s stock continues to trade near its lows, the general market is making new highs. Not the best time to aggressively buy back your stock.

A new ETF is focused on companies that are aggressively returning free cash to shareholders through three avenues: the aforementioned dividends and share repurchases as well as paying down debt. In the four months since its launch -- an admittedly way short time frame -- the Cambria Shareholder Yield ETF (SYLD) has doubled the return of the S&P 500. The repurchase-centric PowerShares Buyback Achievers ETF (PKW) has done even better over that stretch:

SYLD Chart

SYLD data by YCharts

The five largest holdings in the Cambria Shareholder Yield portfolio are Boston Scientific (BSX), Usana Health Sciences (USNA), Taser International (TASR), GameStop (GME) and Manpower Group (MAN). In addition to screening for dividends, repurchases and debt reduction, the actively managed ETF also layers in some valuation work as well.

If you focused solely on dividends the top five holdings in the Cambria Shareholder Yield portfolio would not hit your radar. Three of the companies -- Boston Scientific, Usana Health Sciences and Taser International -- don’t even pay a dividend.

BSX Dividend Yield (TTM) Chart

BSX Dividend Yield (TTM) data by YCharts

But add in the value of their buybacks and debt pay down and their shareholder yields are appreciably higher.

BSX Shareholder Yield TTM Chart

BSX Shareholder Yield TTM data by YCharts

Shareholder yield is part of the YCharts database; you can find it under the Shareholder Payouts, Liquidity & Solvency Ratio dropdown. And you can drill down to the component pieces as well: net payout yield encapsulates both dividends and buybacks, and net debt paydown yield captures the debt reduction component.

A YCharts Stock Screener of the S&P 500 shows SLM (SLM) has the highest shareholder yield, at 70.2%. But that was largely a function of a large reduction in the student loan company’s net debt; SLM’s net debt paydown yield was responsible for nearly 60% of that shareholder yield, part of a huge reduction in total assets.

Seagate Technology (STX) owes much of its high shareholder yield to an aggressive buyback strategy over the past 12 months. As for the dividend, well that hasn’t been the picture of consistency, as it was decimated during the financial crisis.

Discover Financial Services (DFS) generated a high shareholder yield over the past year on the back of a 17% net debt pay down yield that was complemented by a 5% buyback yield. It’s also been rebuilding its dividend after a financial crisis cut. With a current payout ratio below 15% there seems to be plenty of room to keep the growth coming.

DFS Dividend Chart

DFS Dividend data by YCharts

Despite a 36% price gain over the past year, Discover Financial’s 11 trailing PE ratio hasn’t risen nearly as much over that stretch.

While returning free cash flow has obvious charms, that’s not to suggest it is the holy grail. Google (GOOG) and Berkshire Hathaway (BRK.B) shareholders have made plenty of money over the long-term, despite non-existent shareholder yields.

Carla Fried, a senior contributing editor at ycharts.com, has covered investing for more than 25 years. Her work appears in The New York Times, Bloomberg.com and Money Magazine. She can be reached at editor@ycharts.com. Read the RIABiz profile of YCharts. You can also request a demonstration of YCharts Platinum.

Read more articles about: Investing Ideas  ETFs   dividends   buybacks   

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