How does Shareholder Yield Work?
Shareholder Yield holistically considers the use of capital in a company and how it is deployed. Let's examine the strategies on their own:
Dividend Yield: An abnormally high dividend yield is often linked to an imminent dividend cut which most often results in a falling share price. Any dividend that exceeds cash flow is unsustainable over the long term as it is funded with debt.
Share Buybacks: Companies buying back their shares reduce the shares outstanding is accretive to remaining shareholders. However, if the share buybacks are only made to buy back shares exercised through dilutive options or are funded by debt this can actually be value destructive for shareholders. Some buybacks are made due to large asset sales which can be a sign of value accretion or destruction. An investor must know the difference.
Debt repayment: Reducing debt is generally a good thing but the motivation for it must be analyzed. This may be a sign of a mature declining business. It might be indicative of strong free cash flow. It might also signal a disciplined management team.