Most Investors Overlook These Shareholder-Friendly Moves...
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August 6, 2020
Most Investors Overlook These Shareholder-Friendly Moves...
By Nathan Slaughter
[Nathan Slaughter]
When it comes to beating the market, dividends have always reigned supreme.
If you'd invested $100,000 in the S&P 500 back in 1982, it would have been worth $2.3 million in roughly 30 years. If you would have invested that same amount in dividend payers, you'd have $4.3 million.
Not bad. But that's where most investors stop -- and they're making a big mistake...
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If you'd invested the same amount of cash using a simple strategy that too many investors often ignore, then it would have been worth $6.7 million.
You see, many investors searching for the best total returns will simply look for stocks with high dividends. That makes sense. But dividends don't tell the whole story -- not even half of it.
Now, I realize this may sound strange coming from me. After all, as Chief Investment Strategist of StreetAuthority's premium newsletter, [High-Yield Investing](, it's my job to identify some of the world's best income opportunities for my subscribers each month.
But as I consistently tell my subscribers, if you're looking for more cash from your investments, you should be looking at all of the ways a company distributes its cash.
Dividends Are Great. But So Is This...
Don't get me wrong -- dividends can be a great indicator of company health. From 1972 through 2011, members of the S&P that didn't pay dividends returned just 1.4% per year, turning a $1,000 investment into just $1,710 according to research by Ned Davis.
Meanwhile, companies that pay dividends returned 8.6% annually -- significantly more than those that didn't. So Dividends are obviously a key ingredient to success. But they're not the whole story.
Investors often overlook two other ways companies can actively return money to shareholders: stock buybacks and debt reduction.
While stock buybacks and debt reduction aren't necessarily as instantly gratifying to an investor as a check in the mailbox, they hold just as much value.
You see, when a company buys back its own stock, it effectively reduces the pool of shares available. And this makes the shares still out there on the market that much more valuable.
For example, if you own 10% of a company that earned $1,000, your share of earnings would be $100. But if that company bought back half of its stock, your portion of the earnings would double to $200. And that's without you having invested another dime.
And then there's debt repayment. Companies that reduce their debt load both make for safer and higher-yielding investments.
Debt reduction means a company has its act together. It's generating enough cash flow that it doesn't need to depend on others to expand. And the less you owe... the lower your interest expenses. This frees up more capital for other uses... like increasing dividends and buying back shares.
Put simply, the less money a company is obligated to pay creditors, the more it has to line your pockets.
Bringing It All Together
When factored in together, dividends, share buybacks, and debt reduction provide a more comprehensive view of the ways companies return money to shareholders.
Although we normally focus on yield in [High-Yield Investing](, these other two methods of returning value to shareholders shouldn't be overlooked. Simply put, I think every investor should be looking at stocks this way. If history is any guide, you should outperform any and all "dividend-only" strategies over time.
By looking at stocks in a comprehensive manner, my subscribers and I are able to achieve as much income as possible over the long-run. You owe it to yourself to invest this way, too.
Fortunately, my research staff and I have created a special report that goes into more detail about our strategy to help get you started.
[To check out this report, simply follow this link.](
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Disclosure: StreetAuthority doesn't own shares of any securities mentioned in this article. Members of our staff are restricted from buying or selling any securities for three days after being featured in our advisories or on our website.
StreetAuthority is a publisher of financial news and opinions. StreetAuthority is not a securities broker/dealer or an investment advisor and we do not recommend or endorse any brokers, dealers or investment advisors. This work is based on SEC filings, current events, interviews, corporate press releases and publicly available information which may contain errors. All information contained in our newsletters and/or on our website(s) should be independently verified with the companies or sources mentioned. You are responsible for your own investment decisions and should always conduct your own research and due diligence and consider obtaining professional advice before making any investment decision.
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