Today, we bring Palm Beach Daily readers more insight from Grant Wasylik. The Palm Beach Letter’s chief analyst attended the 8th annual “Inside ETFs” conference last month. It’s the largest exchange-traded fund (ETF) conference in the world. (You can read previous entries here and here).
From Grant Wasylik, chief analyst, The Palm Beach Letter: Meb Faber and The Palm Beach Letter (PBL) have a mutual admiration for shareholder-friendly companies that return piles of cash to shareholders…
I ran into Meb Faber at the Inside ETFs conference in Hollywood, Fla. He’s the co-founder and CIO of Cambria Investment Management. He’s written two books, Shareholder Yield: A Better Approach to Dividend Investing and The Ivy Portfolio: How to Invest Like the Top Endowments and Avoid Bear Markets. And he co-manages Cambria’s five ETFs with co-founder and CEO Eric Richardson.
Grant chats “shareholder yield” with Palm Beach friend Meb Faber at the world’s largest ETF conference (Insider ETFs) last month.
Meb’s investment focus has always been “shareholder yield.” Amateur investors consider only dividends when seeking yield. But dividends are only one of three important ways companies reward their shareholders. The other two ways are by buying back stock and paying down debt. It’s important you take all three into consideration when evaluating shareholder-friendly businesses.
Meb’s Cambria Shareholder Yield ETF (NYSE: SYLD) invests in the 100 U.S. stocks that rank the highest in dividend payments, stock buybacks, and paying down debt. This produces a portfolio of companies with strong free cash flow (FCF) characteristics. Since the ETF’s inception in May of 2013, SYLD is up 36.1% compared to the S&P 500’s 32.7%.
If you’re a PBL subscriber, you know we’re keen on companies with strong shareholder yield. Almost half of our current recommendations (12 of 25) fall in our “shareholder-friendly” category. These 12 picks are up an average of 39%. And not one recommendation has a negative return at the time of this writing.
We share three picks in common with Meb: Xerox (NYSE: XRX), Anthem Inc. (NYSE: ANTM), and our December 2014 recommendation (“one of the safest stocks in the world”). These picks are up 70%, 116%, and 2% so far. Stock No. 3 is getting close to its buy-up-to price. Make sure you own it by clicking here.
Now, the themes in this section of our portfolio consist of “Relentless Dividend Raisers,” the “Dividend Elite,” “Buyback,” and “Special Dividends.” The first three themes would jive with Meb’s focus on shareholder yield. But the fourth—Special Dividends—would not…
That’s where Palm Beach Letter subscribers have another leg up.
We consider Special Dividend companies shareholder friendly because they pay quarterly dividends, plus special dividends with regularity. All three of our special dividend stocks have rewarded us with at least one special dividend payment. That bumps their true yields to 7.5%, 6.2%, and 6.7% over the last five years. These safe yields are remarkable in a time of zero interest rates. And these numbers don’t even include buybacks!
[Special dividends are payouts above and beyond a company’s regular quarterly dividends. Financial websites do not include special dividends in their stated yield calculations… but a small number of companies also pay special dividends like clockwork.
“True yield” is a yield measurement that combines regular stated yield and yields from special dividends.]
We admire Meb’s work (even if he snubs special dividends). For more on Cambria’s innovative lineup of ETFs, go here.