Beyond Dividends: Beating The Market With Shareholder Yield

Dividend investing is a massively popular investing strategy, and for good reasons. After all, it has worked well over the years, and it's easy to intuitively understand why companies distributing big dividends to investors tend to produce attractive returns. Besides, dividends provide current income from your portfolio, which can be a major advantage to many investors, especially those in retirement.
Nevertheless, dividends are just part of the equation when it comes to cash distributions. Including buybacks and debt paydowns can be a smarter and more holistic approach, and research shows that it can also produce superior returns over time.
Money talks
Management has basically two main choices when it comes to allocating the cash generated by the business. It can retain that money, typically by reinvesting in the business or making acquisitions. Alternatively, if the business generates more cash than it needs, management can distribute that excess cash to investors, which can be done via dividends, share buybacks, and/or debt cancellations.
Reinvesting in the business is the best choice when those investments are promising enough in terms of risk and expected return, so everything depends on the particular company and the specific circumstances. However, there is plenty of academic research showing that companies making big capital distributions can be winning investments in the long term.
Dividends are quite straightforward and easy to appreciate. Investors... Read more