Shareholder Yield Rocks the Investment World

NEW YORK (TheStreet) -- Given the chance to own stocks that are undervalued, have better-than-average upside potential and offer cash payouts to shareholders, most investors are saying "Yes, please!"

This is shareholder yield, and one of the other secret ingredients is the focus on companies that are buying back their own shares. Some call this the "stealth, tax-free dividend" that adds to share price growth.

By reducing shares outstanding through stock buyback programs, companies such as Usana Health Sciences ( USNA) have reduced share dilution and goosed the share price higher.

This combination of compelling valuations, meaningful dividend payouts and stock buyback has helped send the shares of Meredith Corp. ( MDP) to new 52-week highs.

Meredith is a media and marketing company. It makes its profits in magazine publishing and related brand licensing, television broadcasting, digital and customer relationship marketing, digital and mobile media and video creation operations in the United States.

Let the following one-year chart serve to illustrate how offering shareholder yield and a lucrative business model can propel a company's share price to new and bountiful heights.

MDP Chart MDP data by YCharts

MDP recently announced it will launch a new magazine and television segment based on its popular recipe Web site Allrecipes.com. It steps into the earnings confessional on Thursday. Analysts are anticipating around a 7.5% increase in its quarterly EPS.

When it comes to participating in the shareholder yield thesis, investors should consider the relatively new Cambria Shareholder Yield ETF ( SYLD).

It's an actively managed fund that employs the manager's quantitative algorithm to select U.S. listed companies that show strong characteristics in returning free cash flow to their shareholders. It's been available to the public since May 14 of the year.

Specifically, SYLD invests in 100 stocks with market caps greater than $200 million that rank among the highest in (a) paying cash dividends, (b) engaging in net share repurchases, and (c) paying down debt on their balance sheets.

That last criterion -- paying down debt on its balance sheets -- may be one of the most under-appreciated ones. When pointed out, shareholders immediately recognize that low levels of debt maintenance usually means more free cash flow for dividends and stock buybacks.

Recently, The Street's Gregg Greenberg interviewed SYLD's co-founder and portfolio manager Mebane Faber .

Faber mentioned that just focusing on dividends when investing in a stock is one of the mistakes that investors often make. In the interview he mentions the other ways a company can offer its shareholders some meaningful advantages.

He also comments on how publicly traded companies can promote organic growth such as investing in new products and technologies. Some go after non-organic growth like acquiring other companies.

Another reason to watch the video is to hear about all the requirements necessary for a company to become one of the 100 companies that make it into the SYLD ETF.

In its "Strategy Overview" Cambria Funds states, "Free cash flow has long been emphasized by investors as a key predictor of a company's strength."

SYLD's unique emphasis on using free cash flow for net share repurchases and net debt pay-down is both a risk-reduction and an upside growth investment approach.

The manager of SYLD believes that a focus on all three shareholder benefits; dividend payments, net share repurchases and net debt pay-down, a trio collectively known as "shareholder yield" produces a portfolio of companies that offer strong free cash flow characteristics.

Faber recently authored a book titled, "Shareholder Yield: A Better Approach to Dividend Investing," which is available at Amazon.com ( AMZN).

Having just read the book in one sitting I can attest to its readability, clarity and universal helpfulness for investors who are directly or indirectly investing in publicly traded companies. Its glossary includes definitions of frequently used financial metrics and ratios. It alone is worth the $5.47 price of the book.

By the way, the expense ratio on SYLD is 0.59%, which is reasonable for an actively managed ETF that is rebalanced on a quarterly basis. Consider the Shareholder Yield approach as a component of your overall asset allocation strategy, and do your own careful due diligence.

At the time of publication the author is long shares of SYLD.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Marc Courtenay is the founder and owner of Advanced Investor Technologies, LLC, as well as the publisher and editor of www.ChecktheMarkets.com.

Courtenay holds a Master's of Science degree in Psychology from California Polytechnic State University, and is a former senior vice-president of Investments for two major brokerage firms. He's been a fiercely independent investment "investigator" and a consulting contributor to the investment publishing world for over 30 years. In addition to his role as an investment publisher and analyst, he serves as a marketing consultant to the investment media industries.

In his role as a financial editor, he specializes in unique investment strategies, overlooked stock investments, energy and resource companies, precious metals, emerging growth companies, the prudent use of option strategies,real estate related opportunities,wealth preservation, money-saving offers, risk management, tax issues, as well as "the psychology of investing". Because of his training and background in Clinical Counseling and Psychology, he enjoys writing about investor behavior, the ¿herd mentality, how to turn investment mistakes into investment breakthroughs and the stock market's behavioral trends and patterns.


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