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Shareholder Yield in the Era of Low Interest Rates

Investors too often focus solely on dividends, when they should consider a combination of dividends and share repurchases.

In a decade-long spell of low interest rates, public companies have strong incentives to reconsider their capital allocation plans. For many firms, debt that cost 7-8% in the early 2000’s can now be issued for a fraction of that amount. Alphabet made headlines this morning by issuing 40 year notes at 2.25%, a record amount ($10B in total issuance across maturities) at such a low rate. With borrowing costs abnormally low since the ’08 financial crisis, some firms have shifted from using debt as a means to finance growth, to a method of returning capital to shareholders.

Applied Finance’s proprietary database has dividend and share repurchase data going back to the 1990’s. Performance differences between firms that repurchase shares and issue dividends, vs firms that constantly dilute shareholders, are staggering. Over the long-term, high shareholder yield companies have outperformed low shareholder yield firms by nearly 8% on an annualized basis.

Applied Finance Database: Russell 3000, 9/30/98 – 7/31/20

Applied Finance portfolios consider a company’s use of cash flows for capital expenditures, debt, growth, dividends and share repurchases, as well as if these items help or hurt the firm’s valuation. Applied Finance’s two flagship strategies currently both have a shareholder yield higher than the S&P 500 on an average basis. Additionally, nearly half of the holdings in each strategy have a shareholder yield of at least 5%.

Applied Finance Database: 7/31/20, excludes certain extreme M&A skews in Shares Repurchased

With the 10 year US treasury bond now at 0.55%, investors focusing on retirement and income need to find yield in other arenas. A complete approach to shareholder yield could be an appropriate option for many investors, and the long-term results of such an approach are favorable.


  • John Holt, CFA joined Applied Finance in 2014 and is involved in the management of both quantitative strategies and analyst driven strategies.


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