1 00:00:02,640 --> 00:00:21,520 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. 2 00:00:22,960 --> 00:00:27,320 Speaker 2: Dividend investing has a long and storied history. A substantial 3 00:00:27,400 --> 00:00:31,319 Speaker 2: percentage of market returns are due to the impact of 4 00:00:31,520 --> 00:00:37,200 Speaker 2: reinvested dividends compounding over time. But it turns out dividends 5 00:00:37,360 --> 00:00:42,159 Speaker 2: are only part of the picture driving stock returns. Shareholder yield, 6 00:00:42,400 --> 00:00:46,960 Speaker 2: as it's become known, includes dividends, but also share buybacks 7 00:00:47,360 --> 00:00:53,000 Speaker 2: and debt paydowns as indicators of future gains. I'm Barry Ritholtz, 8 00:00:53,040 --> 00:00:56,160 Speaker 2: and on today's edition of At the Money, we're going 9 00:00:56,200 --> 00:01:00,040 Speaker 2: to discuss how you can participate in shareholder yield and 10 00:01:00,120 --> 00:01:03,320 Speaker 2: get more out of dividends. To help us unpack all 11 00:01:03,360 --> 00:01:06,280 Speaker 2: of this and what it means for your portfolio, let's 12 00:01:06,280 --> 00:01:10,720 Speaker 2: bring in MEB Faber, founder and CIO of Cambria. The 13 00:01:10,760 --> 00:01:15,160 Speaker 2: firm manages numerous ETFs, including those that focus on shareholder yield, 14 00:01:15,520 --> 00:01:19,160 Speaker 2: and is approaching three billion dollars in client assets. He 15 00:01:19,280 --> 00:01:22,440 Speaker 2: is the author of Shareholder Yield, A Better Approach to 16 00:01:22,520 --> 00:01:26,640 Speaker 2: Dividend Investing, just out in its second edition this week. 17 00:01:27,080 --> 00:01:29,399 Speaker 2: So MAB, let's start with the basics. How do you 18 00:01:29,480 --> 00:01:31,840 Speaker 2: define what shareholder yield is? 19 00:01:32,400 --> 00:01:38,319 Speaker 3: Most common definition is total cash payout meaning cash dividends 20 00:01:38,720 --> 00:01:43,199 Speaker 3: plus net stock buybacks. Net being a very key word 21 00:01:43,200 --> 00:01:46,720 Speaker 3: there because it incorporates not just stock buybacks but also 22 00:01:47,160 --> 00:01:50,600 Speaker 3: share issuance. So think about just dividends and buybacks. That's 23 00:01:50,600 --> 00:01:52,640 Speaker 3: what most people think of when they think of shareholder yield. 24 00:01:53,040 --> 00:01:56,920 Speaker 2: Huh. Interesting. Why should companies that are returning cash to 25 00:01:57,040 --> 00:02:01,400 Speaker 2: investors through either dividends or buybacks be attractive to investors? 26 00:02:02,000 --> 00:02:04,960 Speaker 3: There's a lot of coinherited traits for a company that's 27 00:02:05,000 --> 00:02:09,280 Speaker 3: paying dividends or buying back shares. The biggest is they 28 00:02:09,320 --> 00:02:11,280 Speaker 3: have to have the cash in the first place. So 29 00:02:11,320 --> 00:02:15,040 Speaker 3: if you're paying out a ten percent yield, then likely 30 00:02:15,240 --> 00:02:18,440 Speaker 3: you either have a ton of cash flow or more 31 00:02:18,480 --> 00:02:20,320 Speaker 3: cash than you know what to do with. A good 32 00:02:21,120 --> 00:02:24,560 Speaker 3: traditional case study would be Apple, who did both. They 33 00:02:24,600 --> 00:02:27,280 Speaker 3: pay out patch dividend and they do a stock buyback, 34 00:02:27,639 --> 00:02:30,320 Speaker 3: and the summation of the two is really the combination. 35 00:02:30,760 --> 00:02:33,000 Speaker 3: Being agnostic the holistic that matters. 36 00:02:33,639 --> 00:02:35,560 Speaker 2: So what does the research, and I know you spend 37 00:02:35,600 --> 00:02:38,440 Speaker 2: a lot of time doing academic research, what does it 38 00:02:38,520 --> 00:02:43,079 Speaker 2: suggest about higher yielding stocks versus stocks that have little 39 00:02:43,160 --> 00:02:43,880 Speaker 2: to no yield. 40 00:02:45,040 --> 00:02:49,280 Speaker 3: First of all, investors love dividends, there's probably no more 41 00:02:49,639 --> 00:02:54,640 Speaker 3: time honored tradition than people getting that quarterly dividend check. 42 00:02:55,400 --> 00:02:59,040 Speaker 3: Passive income people fantasize about sitting on the beach, drinking 43 00:02:59,080 --> 00:03:03,320 Speaker 3: pina coladas and cabo and getting that dividend check. But 44 00:03:03,800 --> 00:03:06,640 Speaker 3: you have to account for structural changes in markets, and 45 00:03:06,720 --> 00:03:09,400 Speaker 3: really starting in the nineteen eighties and accelerating in the 46 00:03:09,480 --> 00:03:13,160 Speaker 3: nineteen nineties, companies started buying back more stock than they 47 00:03:13,200 --> 00:03:16,280 Speaker 3: start than they paid out in cash dividends, and any 48 00:03:16,320 --> 00:03:19,680 Speaker 3: given year since then, there's been more buybacks. So investors 49 00:03:19,680 --> 00:03:24,440 Speaker 3: that focus only on dividends historically now miss over half 50 00:03:24,480 --> 00:03:29,320 Speaker 3: of the picture on how companies distribute their cash. This 51 00:03:29,440 --> 00:03:32,720 Speaker 3: is also important because of the standpoint of companies that 52 00:03:32,840 --> 00:03:36,040 Speaker 3: issue shares. So you think the companies in my home 53 00:03:36,080 --> 00:03:38,960 Speaker 3: state of California, the tech companies that love to make 54 00:03:38,960 --> 00:03:43,320 Speaker 3: it rain to executives and c suite with stock based compensation. 55 00:03:44,120 --> 00:03:47,840 Speaker 3: So avoiding the companies that have a negative yield, meaning 56 00:03:47,960 --> 00:03:51,200 Speaker 3: they're diluting investors every year is important too. And so 57 00:03:51,240 --> 00:03:54,200 Speaker 3: if you do the combination of these two factors and 58 00:03:54,240 --> 00:03:56,800 Speaker 3: look at it in history, it's really been the premier 59 00:03:56,960 --> 00:03:59,080 Speaker 3: way to look at value investing for the past one 60 00:03:59,160 --> 00:04:01,280 Speaker 3: hundred years really interesting. 61 00:04:01,720 --> 00:04:04,560 Speaker 2: So if a company has some extra cash on hand, 62 00:04:05,040 --> 00:04:09,080 Speaker 2: are they better off raising their dividends, doing a new buyback, 63 00:04:09,400 --> 00:04:10,920 Speaker 2: or a combination of both. 64 00:04:12,000 --> 00:04:14,080 Speaker 3: The answer is it depends. You know, the job of 65 00:04:14,120 --> 00:04:17,800 Speaker 3: a CEO is really to maximize the return on investment. 66 00:04:17,839 --> 00:04:20,039 Speaker 3: There's only five things a company can do with its cash. 67 00:04:20,080 --> 00:04:23,279 Speaker 3: That's the menu. There's no secret in and out menu here, right. 68 00:04:23,400 --> 00:04:25,720 Speaker 3: It's they can pay out a dividend, they can buy 69 00:04:25,760 --> 00:04:28,320 Speaker 3: back stock, they can pay down debt if they have it, 70 00:04:28,600 --> 00:04:31,360 Speaker 3: they can go merge or acquire another company. And then 71 00:04:31,400 --> 00:04:33,640 Speaker 3: the last one, which is what everyone spends ninety nine 72 00:04:33,680 --> 00:04:36,359 Speaker 3: percent of the time focusing on, is reinvest in the 73 00:04:36,360 --> 00:04:39,279 Speaker 3: business R and D. So what new iPhone are we launching, 74 00:04:39,360 --> 00:04:41,960 Speaker 3: what new chip is Nvidia doing? What new service are 75 00:04:41,960 --> 00:04:44,159 Speaker 3: we offering? But really it's the job of the CEO 76 00:04:44,320 --> 00:04:48,080 Speaker 3: to maximize those five levers. And in some cases, if 77 00:04:48,160 --> 00:04:50,400 Speaker 3: you look at someone like Apple, you get to be 78 00:04:50,440 --> 00:04:52,599 Speaker 3: so big and you have so much cash and money 79 00:04:52,720 --> 00:04:55,080 Speaker 3: you simply can't spend it. Now, you probably could in 80 00:04:55,080 --> 00:04:57,359 Speaker 3: a Brewster's million sort of way, but it wouldn't be 81 00:04:57,360 --> 00:05:00,279 Speaker 3: beneficial to shareholders. You see a lot of company that 82 00:05:00,360 --> 00:05:04,040 Speaker 3: do that, they spend the money, but in a way 83 00:05:04,040 --> 00:05:06,360 Speaker 3: that doesn't maximize the ROI. 84 00:05:06,839 --> 00:05:10,480 Speaker 2: So let's talk a little bit about shareholder yield across 85 00:05:10,680 --> 00:05:14,279 Speaker 2: different market caps. Does it matter if you're a large 86 00:05:14,279 --> 00:05:17,159 Speaker 2: cap or a medium or a small and how do 87 00:05:17,200 --> 00:05:21,719 Speaker 2: you guys think about different sized companies and their shareholder yield. 88 00:05:22,720 --> 00:05:25,280 Speaker 3: When we wrote this book a decade ago, you know, 89 00:05:25,680 --> 00:05:28,919 Speaker 3: we looked at the historical returns of shareholder yield companies 90 00:05:28,920 --> 00:05:32,200 Speaker 3: and it turned out that shareholder yield beat any dividend 91 00:05:32,200 --> 00:05:35,200 Speaker 3: strategy we could come up with high dividend yield, dividend growth. 92 00:05:35,200 --> 00:05:36,760 Speaker 3: It beat the market on and on, and we saw 93 00:05:36,760 --> 00:05:39,720 Speaker 3: it as really the premiere factor. Now we didn't invent this. 94 00:05:40,440 --> 00:05:42,760 Speaker 3: Jim O'Shaughnessy our but has talked a lot about this 95 00:05:42,880 --> 00:05:46,760 Speaker 3: in his classic book William Priest and Others. But modeling it, 96 00:05:46,800 --> 00:05:48,800 Speaker 3: we saw that it made the most sense of any 97 00:05:48,800 --> 00:05:51,760 Speaker 3: strategy we could find. It worked in large cap, it 98 00:05:51,800 --> 00:05:54,120 Speaker 3: worked in small cap, it worked in foreign and worked 99 00:05:54,160 --> 00:05:57,280 Speaker 3: in emerging. If you have any investing factor or any strategy, 100 00:05:57,720 --> 00:06:00,760 Speaker 3: you want it to work most of the place, most 101 00:06:00,800 --> 00:06:03,040 Speaker 3: of the time. Right, So if it works in US 102 00:06:03,080 --> 00:06:04,680 Speaker 3: but not in Japan, that's problem. If it works in 103 00:06:04,720 --> 00:06:07,600 Speaker 3: small cap but not large cap, that's a problem. And 104 00:06:07,680 --> 00:06:09,800 Speaker 3: the beauty of this strategy it's not only worked since 105 00:06:09,839 --> 00:06:13,839 Speaker 3: the publication of the book, but it's worked as far 106 00:06:13,880 --> 00:06:16,520 Speaker 3: back as you can take it, and it's very, very consistent. 107 00:06:17,600 --> 00:06:22,880 Speaker 3: So it really captures a number of factors and characteristics, 108 00:06:23,000 --> 00:06:25,760 Speaker 3: the main one of course being value and quality, which 109 00:06:25,760 --> 00:06:27,559 Speaker 3: has been hard to keep up. You know, the romping, 110 00:06:27,600 --> 00:06:30,440 Speaker 3: stomping SMP of the past fifteen years has creamed everything, 111 00:06:30,839 --> 00:06:36,760 Speaker 3: but shareholder yield across categories right now in twenty twenty four, 112 00:06:38,040 --> 00:06:40,480 Speaker 3: because of the valuation gap looks about the best it's 113 00:06:40,520 --> 00:06:42,440 Speaker 3: ever looked over the past decade. 114 00:06:42,600 --> 00:06:46,720 Speaker 2: So discussing cap size, you have a shareholder yield ETF 115 00:06:47,120 --> 00:06:50,360 Speaker 2: for large cap, for mid, and then a combined small 116 00:06:50,360 --> 00:06:53,640 Speaker 2: cap and microcap, and from what I've seen over the 117 00:06:53,640 --> 00:06:56,280 Speaker 2: past few years, they've beaten the s and P. If 118 00:06:56,279 --> 00:06:58,400 Speaker 2: you go back ten or twenty years, the SMP is 119 00:06:58,480 --> 00:07:04,400 Speaker 2: still slight performing. But let's talk about geography. Those three large, mid, 120 00:07:04,440 --> 00:07:08,640 Speaker 2: and small are all US based. You also have an 121 00:07:08,760 --> 00:07:12,920 Speaker 2: international version and an emerging markets version. Tell us about 122 00:07:13,000 --> 00:07:14,760 Speaker 2: overseas shareholder yield. 123 00:07:15,320 --> 00:07:17,520 Speaker 3: So if you look at across all five of these funds, 124 00:07:17,880 --> 00:07:21,080 Speaker 3: the average stock coming in has a double digit shareholder yield. 125 00:07:21,120 --> 00:07:23,160 Speaker 3: And let that sink in for a second. SMP is 126 00:07:23,240 --> 00:07:26,000 Speaker 3: yielding what one point three percent dividend yield right now, 127 00:07:26,440 --> 00:07:30,239 Speaker 3: and so ignoring buyback yield is a huge mistake, particularly 128 00:07:30,320 --> 00:07:33,880 Speaker 3: in the US. The US is very corporate buyback focus, 129 00:07:34,320 --> 00:07:36,800 Speaker 3: so the majority of the shareholder yield in the US 130 00:07:36,880 --> 00:07:39,240 Speaker 3: comes from the buyback yield. Again, we're talking about ten 131 00:07:39,280 --> 00:07:43,400 Speaker 3: percent yields coming in. In foreign developed and emerging that 132 00:07:43,480 --> 00:07:46,760 Speaker 3: tends to be closer to fifty to fifty dividends and buybacks, 133 00:07:46,760 --> 00:07:49,360 Speaker 3: So you'll see a higher five six percent dividend yield 134 00:07:49,440 --> 00:07:52,440 Speaker 3: in those geographies, largely because they have a culture of 135 00:07:52,440 --> 00:07:55,360 Speaker 3: paying cash dividends more than buybacks, although that is changing. 136 00:07:55,600 --> 00:07:59,200 Speaker 3: You're seeing in particular countries like Japan really start to 137 00:07:59,280 --> 00:08:02,480 Speaker 3: ramp up their buy back focus. And to be clear, 138 00:08:02,520 --> 00:08:05,080 Speaker 3: when you talk about buybacks, there's so much misinformation. Oh 139 00:08:05,120 --> 00:08:08,800 Speaker 3: my goodness. The number one thing is if you frame 140 00:08:08,880 --> 00:08:14,400 Speaker 3: buybacks simply as tax efficient dividends or flexible dividends, it 141 00:08:14,560 --> 00:08:18,400 Speaker 3: changes your entire perspective across all of this, and nobody 142 00:08:18,480 --> 00:08:21,960 Speaker 3: understood that understands this better than Warren Buffett. Warren Buffett 143 00:08:21,960 --> 00:08:24,800 Speaker 3: has been talking about buybacks since the nineteen eighties. Right 144 00:08:24,880 --> 00:08:27,320 Speaker 3: his famous quote on Bircher, he says, Bircher's never paid 145 00:08:27,360 --> 00:08:30,160 Speaker 3: a dividend. It once paid a ten cent dividend in 146 00:08:30,200 --> 00:08:32,560 Speaker 3: the sixties, and I must have been in the bathroom, right, 147 00:08:32,640 --> 00:08:35,160 Speaker 3: So he gets it. He gets it on buybacks. On average, 148 00:08:35,240 --> 00:08:38,360 Speaker 3: if a stock is cheap, a buyback is a great 149 00:08:38,440 --> 00:08:41,240 Speaker 3: use of cash. You can buy a dollar for eighty 150 00:08:41,280 --> 00:08:43,760 Speaker 3: cents for fifty cents, and then that's what you see 151 00:08:43,800 --> 00:08:47,679 Speaker 3: in the portfolios across the shareholder yield lineup. The price 152 00:08:47,760 --> 00:08:52,080 Speaker 3: earnings ratios, the cash flow ratios are at a significant 153 00:08:52,080 --> 00:08:54,800 Speaker 3: discount to the S and P five Fronter, but also 154 00:08:54,880 --> 00:08:57,640 Speaker 3: the categories these funds tend to be in. We're talking 155 00:08:57,679 --> 00:09:01,760 Speaker 3: single digit PE ratios, which is a gap that has 156 00:09:01,880 --> 00:09:05,080 Speaker 3: widened over the past decade, but in particularly the last 157 00:09:05,160 --> 00:09:08,040 Speaker 3: three to four years with some of the largest valuation 158 00:09:08,160 --> 00:09:11,160 Speaker 3: spreads we've seen. So it's a particularly attractive time, we think, 159 00:09:11,520 --> 00:09:13,560 Speaker 3: to be in shareholder yield stocks. 160 00:09:13,760 --> 00:09:16,520 Speaker 2: So who is the typical buyer of any of these 161 00:09:16,520 --> 00:09:22,360 Speaker 2: shareholder yield dtfs? Are they traditional value and dividend investors, 162 00:09:22,720 --> 00:09:25,679 Speaker 2: who do you see as purchasing your funds. 163 00:09:26,520 --> 00:09:30,040 Speaker 3: It's a little bit of everything. You have advisors that 164 00:09:30,559 --> 00:09:33,240 Speaker 3: think in the style boxes, so they're making substitutes like 165 00:09:33,280 --> 00:09:36,679 Speaker 3: a lego. You have individual investors, you have institutions that 166 00:09:36,760 --> 00:09:39,520 Speaker 3: are simply looking for a better approach to not just 167 00:09:39,559 --> 00:09:43,640 Speaker 3: income but just equity investing in general. What's interesting is 168 00:09:43,679 --> 00:09:45,560 Speaker 3: you have a lot of investors in this cycle that 169 00:09:45,640 --> 00:09:48,560 Speaker 3: have shied away from foreign and emerging markets. How many 170 00:09:48,559 --> 00:09:51,080 Speaker 3: times have you heard I don't trust the numbers, I 171 00:09:51,080 --> 00:09:54,280 Speaker 3: don't believe in emerging markets what they're doing. And our 172 00:09:54,320 --> 00:09:56,760 Speaker 3: emerging market fund is actually our second biggest fund. And 173 00:09:56,800 --> 00:10:00,360 Speaker 3: what's interesting about emerging markets. If your company that paying 174 00:10:00,360 --> 00:10:04,520 Speaker 3: out ten percent of your market cap and dividends or 175 00:10:04,559 --> 00:10:06,520 Speaker 3: buying back shares, you know what you're not doing with 176 00:10:06,520 --> 00:10:10,959 Speaker 3: that money is squandering it. You're not naming stadiums, you're 177 00:10:10,960 --> 00:10:13,480 Speaker 3: not buying jets, you're not doing bribes, on and on. 178 00:10:13,559 --> 00:10:15,160 Speaker 3: You have to have the cash to be able to 179 00:10:15,160 --> 00:10:18,359 Speaker 3: pay it out. So by definition, this type of strategy 180 00:10:18,480 --> 00:10:22,000 Speaker 3: is a quality strategy, so it avoids a lot of 181 00:10:22,040 --> 00:10:25,000 Speaker 3: those types of companies. And one more comment, So traditionally 182 00:10:25,040 --> 00:10:30,320 Speaker 3: in the US. This tends towards sectors like financials and energy, 183 00:10:30,559 --> 00:10:35,080 Speaker 3: and that's true across all the geographies currently. And people say, mam, 184 00:10:35,280 --> 00:10:38,040 Speaker 3: you're missing out. You're missing out on the tech AI 185 00:10:38,120 --> 00:10:40,120 Speaker 3: boom in the US. You have a very low tech 186 00:10:40,160 --> 00:10:42,520 Speaker 3: exposure in the US, and that's true. Part of that 187 00:10:42,640 --> 00:10:45,160 Speaker 3: is the tech companies are expensive, and they also are 188 00:10:45,200 --> 00:10:47,840 Speaker 3: doing a lot of share issuance and emerging markets tech 189 00:10:47,880 --> 00:10:48,800 Speaker 3: is the largest sector. 190 00:10:49,080 --> 00:10:49,280 Speaker 2: Wow. 191 00:10:49,440 --> 00:10:51,480 Speaker 3: And so part of that is simply because emerging markets 192 00:10:51,520 --> 00:10:54,720 Speaker 3: are down so much, but also they have a very 193 00:10:54,800 --> 00:10:57,040 Speaker 3: high shareholder yield there as well. Huh. 194 00:10:57,200 --> 00:11:01,280 Speaker 2: Really interesting. So to wrap up, investors who might traditionally 195 00:11:01,320 --> 00:11:07,240 Speaker 2: have been straight divenend buyers should be considering shareholder yield dtfs. 196 00:11:07,640 --> 00:11:11,440 Speaker 2: It gives them the full benefit of management that's trying 197 00:11:11,480 --> 00:11:15,280 Speaker 2: to return the most amount of cash back to shareholders 198 00:11:15,559 --> 00:11:19,400 Speaker 2: through both divin ends and the more tax efficient stock 199 00:11:19,480 --> 00:11:23,800 Speaker 2: buybacks too. I'm Barry Retolts, and this is Bloomberg's at 200 00:11:23,840 --> 00:11:31,560 Speaker 2: the Money