An Active Idea For High Shareholder Yield

Shareholder yield is often overlooked relative to dividend yields and buyback yields, but shareholder yield is more encompassing because it includes three avenues for investor rewards: buybacks, debt reduction and dividends.

Several exchange traded funds focus on shareholder yield using different strategies. One of those ETFs is the actively managed WisdomTree U.S. Quality Shareholder Yield Fund QSY.

What Happened

The WisdomTree ETF “seeks income and capital appreciation by investing primarily in U.S. equity securities that provide a high total shareholder yield with favorable relative quality characteristics,” according to the issuer.

The fund debuted nearly 12 years ago as the WisdomTree U.S. LargeCap Value Fund, but was converted to its present status about a year ago. While it's no longer a dedicated value fund, QSY still sports value traits.

“In fact, we have found that shareholder yield, the ratio of the sum of dividends and buybacks to market capitalization, has been among the best measures of relative value over the past 10 years — a period during which many have claimed value investing is dead,” WisdomTree said in a Wednesday note.

Why It's Important

Historical data confirm that embracing stocks with robust shareholder yields is a winning strategy.

“Stocks in the highest quintile of total shareholder yields in the S&P 500 have outperformed the index by 300 basis points per year for the last 10 years,” according to WisdomTree.  “The lowest shareholder yield quintile has underperformed by 342 bps. This means the relative outperformance by the highest versus the lowest quintiles of shareholder-yielding companies has been almost 650 bps annually — for a decade.”

The ETF holds 170 stocks, none of which exceed a weight of 1.37 percent. As is to be expected, some sectors are home to superior shareholder yield stocks compared to other sectors. The consumer discretionary and technology sectors combine for over 40 percent of QSY's roster, while the real estate and utilities sectors combine for just 1.77 percent of the fund's weight.

What's Next

Well-run companies do not have to decide between capital investment and shareholder rewards.

“Well-run companies may allocate a percentage of their excess capital across internal investments, share repurchases, dividends, debt reduction, M&A and other opportunities based on their strategic priorities and expected rates of return,” according to WisdomTree. “Managements typically want to deploy capital first toward the priority with the highest return on investment.”

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