Analyzing a Stock by Its Dividend and Shareholder Yield


This week’s AAII Weekly Digest highlights these “must-read” AAII articles:

James O’Shaughnessy, in the fourth edition of his book “What Works on Wall Street” found that stocks with the highest buyback yield (top 10%) outperformed the overall stock universe by an average of 3.2 percentage points a year from the start of 1927 through 2009. This First Cut article will show you how to go about identifying these types of companies.


Charles Rotblut

One theory of valuation is that a stock is worth the cash distributable to shareholders. An advantage to methodologies based on this concept is that cash distributions are not influenced by accounting adjustments. Cash is either returned to shareholders or it’s not. This article discusses strategies for valuing stocks both based on their dividend yield and on their shareholder yield, which combines dividends and share buybacks. It also covers the potential drawbacks to using such strategies.

AAII Dividend InvestingAAII’s Dividend Investing (DI) seeks out companies that have a shareholder focus exhibited by distributing excess cash, preferably through consistent and increasing dividends. Dividend increases are an important signaling device. Higher dividends provide a signal to the market that the company is confident in the stability and growth of future earnings. This article from DI discusses the shareholder yield and how you can use it to analyze and evaluate dividend-paying stocks.

What’s the allure of dividend-paying stocks? Dividends provide a segment of return that is always positive. Increases in dividends provide an increased positive cash return and, consequently, increase the value of the instrument producing that return. Positive fluctuations are normal in the world of cash payments to shareholders; negative fluctuations are a rarity. Over time, reinvesting income that increases can result in yield from income alone that’s far higher than anyone can reasonably expect from the total return in the equity market.

 Our Member Question for this week is:


What do you do with dividend payments you receive from companies?


Vote to answer this week’s Special Question: “What do you consider to be the TOP THREE dividend-paying stocks right now and why?”

Last Week’s Results:


Click here to learn about the results of last week’s AAII Special Question.

Guide to Direct Purchase and Dividend Reinvestment Plans

Dividend reinvestment plans have long been popular among shareholders interested in reinvesting dividends at a low cost. There are several advantages to investors who participate in these plans: Dividend payments are put to work, transaction costs are eliminated or held to a minimum, and the additional shares are purchased gradually over time—an easy-to-implement form of dollar cost averaging. A major attraction of a dividend reinvestment plan is the opportunity to buy shares with little or no commissions levied. This AAII member benefit provides an overview of direct purchase and dividend reinvestment plans and resources you can use to participate in such plans.

The AAII Weekly Digest is one of the many benefits of AAII membership. To learn more, consider a risk-free 30-day Trial AAII Membership to start becoming an effective manager of your own assets.


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