BALTIMORE (Stockpickr) -- It's earnings season, and that means that dividends are getting a lot of attention right now. After all, those regular payouts from your portfolio can contribute to a huge chunk of your investment performance. But dividends are only part of the story.
Yes, the cash companies are willing to dish out for investors has everything to do with how your portfolio fares, but dividends alone leave out two critical parts of the equation. For real market-beating returns, you've got to look at shareholder yield.
Shareholder yield focuses on measuring all the different ways that a company can return cash to its shareholders. Yes, that includes dividends -- but it also includes share buybacks and paying down debt.
In a nutshell, shareholder yield is made up of moves that directly return cash or equity to your portfolio.
Any of those three corporate actions can unlock significant value for shareholders, and the data backs it up. According to research by Cambria Investment Management CIO Mebane Faber, shareholder yield historically generates bigger returns than dividends alone. Much bigger returns.
With low interest rates and record levels of cash sitting on corporate balance sheets, management teams are looking for the most effective ways to return value to shareholders. It's not one size fits all, either. The best mix varies from company to company. But by looking at the trifecta of dividends, buybacks and debt extinguishment, you can be sure that you won't miss out on any of the proceeds.
Here's a look at five stocks that have provided superior shareholder yield in the last year.
First up is snack-maker Mondelez International (MDLZ). The $60 billion firm spun out of Kraft back in late 2012, and since then, it's been a pure-play snack business. The firm's brands include household names such as Oreo, Cadbury, Trident gum and Ritz crackers.
Mondelez sports a modest dividend, but the numbers perk up when shareholder yield is measured: MDLZ returned 16.02% of its market capitalization back to shareholders in the last 12 months.
Mondelez owns some of the highest-margin and deepest-moat food brands on your grocer's shelves. Because snack brands are further down on consumers' trade-down lists (shoppers will buy store-brand tomato sauce before they buy generic Oreos), MDLZ has more downside protection than most food names. As the Fed continues to fight deflation, rising input costs remain a concern for Mondelez. To date, the firm has managed to keep its net margins intact (and as high as 12% last quarter), and that fact helps dissipate the biggest black clouds over the business.
From a financial standpoint, Mondelez has been a good steward of shareholder value. While spinoffs always leave balance sheets murky, Mondelez currently sports a tenable $19 billion total debt load that's offset by a $3.7 billion cash position. That's a reasonable amount of leverage for a firm of MDLZ's size, and management has been actively working to reduce debt since the firm broke off from Kraft.
As long as Mondelez keeps dishing out value to shareholders, its share price should continue to benefit long term.
American Express (AXP) is another name that pays out a pretty tepid dividend yield on the surface -- 1.02% at current price levels. But dig deeper, and this financial services giant becomes another shareholder yield champ with a 12.24% payout under its belt in the last year.
American Express is the third-largest payment network in the world by customers, but its more affluent bent means that it sports more dollar volume than its "bigger" rivals. Since dollar volume is how card networks get paid, it's a much more important metric.
Another key difference is that Amex isn't just a payment network -- it's also the lender behind the logo on its cards. The firm owns an attractive niche in its flagship charge card product that also helps reduce the firm's exposure to credit risk, as those cards must be paid in full each month.
In recent years, Amex has been working on expanding its reach by letting third-party banks offer cards that run on its network. That's a viable strategy for Amex to move down-market because it grows the firm's dollar volume without exposing American Express to any additional credit risk. Its partners carry that risk.
Right now, Amex trades for around half the earnings multiple seen at top rival Visa (V). So while valuations remain gaunt, it makes sense to give American Express a closer look.
The last year has been pretty stellar for shareholders of Seagate Technology (STX). Shares of the $19 billion hard drive maker have rallied more than 73% in the trailing 12 months, stomping the S&P 500's otherwise excellent performance over the same period. But shareholder yield tacks another 10.14% onto that performance at current price levels, ratcheting STX higher still.
With shares still looking relatively bargain-priced in spite of that upside, here's everything you need to know about this computer storage stock.
Seagate is the biggest manufacturer of enterprise hard drives, the storage medium that powers the world's servers and IT departments. With the popularity of cloud computing, that server storage has become extremely in-demand, and tailwinds are likely to persist for the foreseeable future as storage needs outpace capacity. Because Seagate sells most of its hard drives to enterprise and OEM customers, it's a level removed from the ebb and flow of consumer buying.
Increasing use of solid state drives poses a threat to HDD sales down the road. For now, SSDs are too expensive to be economically viable at big data farms. As Seagate expands its SSD technology portfolio and invests in manufacturing infrastructure, it should be able to fully protect against declining hard disk drive sales by the time they become material.
In the meantime, shares current trade for just 13 times earnings, making STX cheap relative to other high-growth peers.
Target (TGT) is facing a lot of heat right now thanks to news that customers payment data was breached by hackers, putting information on 70 million customers at risk. But while the breach is getting attention now, it's not likely to materially impact shopping at the retail chain's 1,800 big box stores. American consumers have short memories, after all.
Target has been successful at carving out a moat slightly upmarket from retail incumbent Wal-Mart (WMT). By appealing to middle class women (the firm's target demographic), it's been able to cement itself as a go-to retail name. In recent years, Target has been trading margins for volume, using groceries as a mechanism for getting more buyers through its doors and in front of other merchandise. The shift has been dilutive for margins, but it's ultimately a very good thing for shareholders.
With $14.8 billion in total debt on its balance sheet, Target has been working hard to shed its leverage, returning cash to shareholders in the process. A year ago, debt stood at a much heftier $18 billion. All told, dividends and debt extinguishments add up to a 9.83% shareholder yield for Target in the last year, good enough to qualify it for our list today.
Last up is Deere (DE), the $33 billion heavy machinery maker. Deere builds equipment used in a wide array of agriculture and construction applications, and it's one of the few industrial brands that's been able to achieve household name status. It's the only combine maker I'm aware of that gets away with selling apparel to suburbanites, and that recognition carries over to its core market too.
Deere has a reputation for building reliable, technologically advanced equipment. With a sprawling service network, the firm owns more than 50% of the North American agriculture market. That huge installed base translates to huge ongoing opportunities, but the biggest growth potential now comes from emerging markets like China, where farmers are making the shift to more advanced machinery (and becoming more aware of status symbols like a Deere tractor as they enter a new middle class).
Historically, Deere's captive finance arm has been a major advantage in selling hugely expensive equipment. With the ability to subsidize finance costs in favor of moving machinery, Deere Credit remains a key part of the operation in 2014, while credit remains cheap. In the last year, Deere has paid out a shareholder yield of 8.93%.
To see these names in action, check out the Shareholder Yield Stocks portfolio on Stockpickr.
-- Written by Jonas Elmerraji in Baltimore.