What are we looking for?
U.S. companies with large total shareholder yields that have fallen in price year-to-date.
Investors tend to prefer dividends over less predictable share buybacks, as companies are far more likely to eliminate buybacks over dividends during times of financial hardship. However, buybacks are often overlooked and can provide a floor to a stock price, as opportunistic management teams can swoop in and purchase their own stock in the open market when share prices fall.
To identify companies with the highest total shareholder yield, defined as the forecast dividend yield plus shareholder buyback yield, we used FactSet’s Universal Screening tool to pull all publicly traded companies listed on any U.S. exchange. (Buyback yield is the dollar value of the estimated buyback divided by the market capitalization of the company.)
We further narrowed down our list using the parameters below:
- Market capitalization greater than US$1-billion;
- Estimated dividend yield greater than zero;
- Estimated buyback yield greater than zero;
- Estimated total shareholder yield greater than 10 per cent;
- Year-to-date total return of minus 20 per cent or worse, in order to avoid companies that may be buying back stock near all-time-highs – a practice that companies have been criticized for in the past.
All estimates are based on analyst projections for the next 12 months. We ranked the 24 companies that passed our screen by total shareholder yield, of which the top 10 are displayed in the accompanying table.
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What we found
Five of our 10 companies were classified within the finance sector. Financial lenders may be some of the only beneficiaries from rising interest rates, as they can generate additional profits by charging borrowers higher interest rates for loans.
Additionally, while finance companies by nature tend to carry higher debt loads than other industries, some of the companies on our screen hold considerable amounts of debt, which could pose risks. Investors should conduct their own due diligence on the debt loads, including whether the payments are variable or fixed, and the due date of principal repayments.
Spectrum Brands Holdings Inc., a diversified “home essentials” manufacturer, topped our list with an estimated 26.1-per-cent (rounded) total shareholder yield. The company is currently in the process of selling its hardware and home improvement business to Swedish conglomerate Assa Abloy AB for US$4.3-billion. Analysts are forecasting that the injection of cash when the deal closes could be used by Spectrum to repurchase additional shares of its own stock, resulting in a high buyback yield. The company is expected to report quarterly financial results on Aug. 12.
Capital One Financial Corp., a U.S. bank specializing in credit cards and loans, ranked No. 10 on our screen with an estimated total shareholder yield of 13.2 per cent. It recently announced an additional share repurchase authorization worth US$5-billion, effective from the third quarter of 2022 onward. Capital One may offer investors peace of mind, as it is the largest company passing our screen and a household name. Capital One recently reported earnings on July 22, marginally missing earnings expectations owing to higher loan-loss provisions.
The information in this article is not investment advice. FactSet assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained above.
Arjun Deiva, CFA, is a vice-president at FactSet Canada’s consulting division.
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