What is Total Yield?


High dividend yields combined with stock buybacks give you “Total Yield” a term coined by Chris Brightman of Research Affiliates. Shawn Tully from Fortune has recently written a great article on Total Yields which appears in print (Feb 25, 2013 Fortune Magazine, page 31) and online here.

Brightman sees dividends as a key metric -- but not the sole one. His latest brainstorm is a value-oriented methodology that screens not only for dividends but also for the impact of stock buybacks. In theory, when a company reduces its number of shares by, say, 2% while keeping profits and the price/earnings ratio steady, it should translate to a 2% increase in stock price.

So Brightman adds the percentage of shares repurchased to the dividend yield percentage to calculate what he calls "total yield." He argues that stocks with the highest total yields are far and away the best buys on the market.

Brightman offer two examples with a total yield of 7.3% and 5%: “He's a fan of Exxon Mobil (XOM), which offers a 2.5% yield and which repurchased $20 billion worth of shares in 2012, or 4.8% of the "float." That's a 7.3% total yield.” “Wal-Mart (WMT) is another Brightman favorite. Its yield is just 2.3%, but it offers buybacks of approximately 2.7%, for a total of 5%.”

In addition to Exxon and Wal-Mart, Bank of America has also recently announced it's buying back $5 billion worth of its own stock, equivalent to nearly 4 percent of the company. Morale of this story: In addition to dividend yield, stock repurchases will also increase shareholder returns.

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1 comment

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