O’Shaughnessy Asset Management paper discusses how shareholder yield can be used in an efficient market like large cap stocks.
Summary:
The whitepaper “Shareholder Yield: A Differentiated Approach to an ‘Efficient’ Market” by O’Shaughnessy Asset Management (OSAM) examines the concept of shareholder yield, which combines dividends and share repurchases to assess how companies return capital to shareholders. OSAM defines shareholder yield as the sum of a stock’s dividend yield (excluding special dividends) and the percentage of net share buybacks over the previous twelve months.
The paper argues that traditional passive investing, which often relies on market capitalization-weighted indices, may not be optimal, as larger stocks have historically underperformed smaller ones. OSAM suggests that focusing on shareholder yield can offer a more effective approach to identifying companies committed to returning capital to shareholders.
OSAM’s research indicates that companies with high shareholder yield have historically outperformed the broader market. The paper highlights that one of the most effective stock selection strategies in the U.S. over recent decades has been buying stocks in the midst of repurchasing significant quantities of their shares.
In summary, the whitepaper emphasizes that shareholder yield, encompassing both dividends and share repurchases, is a significant factor in identifying companies committed to returning capital to shareholders, and has been associated with superior stock performance.
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