BALTIMORE (Stockpickr) -- Dividends are great, don't get me wrong. But there's a different metric that investors should be focusing on this year: I'm talking about "shareholder yield." There's a shareholder yield smorgasbord happening right under investors' noses in 2013, and you won't want to miss out.
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Shareholder yield focuses on measuring all the different ways that a company can return cash to its shareholders. Yes, that includes dividends -- but it also includes share buybacks and paying down debt.
In a nutshell, shareholder yield is made up of moves that directly return cash or equity to your portfolio.
Any of those three corporate actions can unlock significant value for shareholders, and the data backs it up. According to research by Cambria Investment Management CIO Mebane Faber, shareholder yield historically generates bigger returns than dividends alone. Much bigger returns.
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The names that offer the heftiest yield aren't always obvious. While Microsoft (MSFT) made big headlines when it announced its $40 billion buyback and dividend plan yesterday, the tech giant ranks at #74 on our list of stocks with the highest shareholder yields. Today, we're focusing higher up on the list.
With low interest rates and record levels of cash sitting on corporate balance sheets, management teams are looking for the most effective ways to return value to shareholders. It's not one size fits all, either – the best mix varies from company to company. But by looking at the trifecta of dividends, buybacks, and debt extinguishment, you can be sure that you won't miss out on any of the proceeds.
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Here's a look at five names that have provided superior shareholder yield in the last year.
AOL
First up is AOL (AOL), the unlikely $2.6 billion Web services stock best known to many investors for its days as "America On Line." But a lot has changed at AOL since then. Today, AOL is primarily a content company, with a collection of sites that includes the Huffington Post, Advertising.com, TechCrunch and StyleList. While subscriptions are still a part of AOL's business model, they dropped to less than a third of revenue in the most recent quarter. The rest comes from advertising on AOL's content sites.
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Despite the exceptional luck in timing its re-entry to the public markets just a few months after the market bottomed in 2009, investors have been slow to warm to AOL. After all, the firm's legacy business has crumbled, and its new business is crowded. But nevertheless, AOL has executed well. The firm is profitable despite its much-reduced scale, and it's done a good job of establishing defensible moats around its niche web properties.
AOL sports a stellar balance sheet, with $483 million in cash offset by just $105 million in debt. That's nearly $5 per share in net cash -- a hefty component of AOL's valuation right now. That's been helped out by the firm's efforts to hike shareholder yield through massive buybacks and dividends.
That adds up to a huge 44.3% yield on AOL's current share price, giving this online content company top billing on our list today.
Mondelez International
Like AOL, Mondelez International (MDLZ) is a spinoff stock. Mondelez is Kraft's former snack business, a $35 billion annual enterprise that suddenly started trading under a very new name a little over a year ago. The Mondelez name may not be very familiar to most consumers yet, but its brands should be: the firm owns names like Oreo, Cadbury, Trident gum and Ritz crackers.
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Unlike most diversified food companies, Mondelez has some big advantages in the snack food category. For example, private label competition is less invasive than in staple foods. That takes huge pressure off of the firm's margins, especially in a market where input costs are providing pressure enough. Emerging markets hold an attractive opportunity for Mondelez because the firm is already so deeply entrenched in them; developing countries already contribute 40% of the firm's total sales today.
MDLZ's spinoff unlocked a lot of value for shareholders -- and much of it remains on its balance sheet. As I write, MDLZ sports $2.5 billion in cash as well as a very tenable $18 billion long-term debt position. Mondelez has been hitting its debt load hard in the last year, wiping out almost half of its obligations on top of a "modest" $2 billion dividend payout.
Mondelez hasn't had any trouble prioritizing shareholder value in 2013. While this stock isn't cheap, it's got a lot of open runway in front of it too.
Hewlett-Packard
It may be surprising to see Hewlett-Packard (HPQ) on a list of stocks that are paying out the highest shareholder yield. After all, HP has gotten a reputation for destroying shareholder value after debacles such as its $11 billion Autonomy acquisition. But, in fact, HP has been dishing out shareholder yield by the fistful, offering investors a 17.6% value boost in the last 12 months.
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In a lot of ways, HP's missteps and massive spending on dividends, buybacks and debt extinguishment are related. The firm entered 2010 with more than $13 billion in cash on its balance sheet, and it needed to find a way to generate a meaningful return on that huge pile of loot. Unfortunately, it would have been better off just handing it back over to its shareholders in the first place.
Even so, Hewlett-Packard has been doing a very good job of moving from the commodity PC business over to services, hardware, and software for enterprise customers. Today, that business adds up to 45% of HPQ's total sales; PCs are just 30%. Filling in the balance are printers, which offer a high moat huge margin business for the firm, even if they're typically lumped with PCs for reporting purposes.
Sure enough, HP could justify a second look this year.
Target
Target (TGT) operates in a tough industry with bigger rivals and very few competitive advantages. But that hasn't stopped the $40 billion retailer from a cascade of higher sales each year -- and thicker margins to boot. It also hasn't stopped Target from paying out a sizable 9.4% shareholder yield.
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Target runs nearly 1,800 big box stores spread across North America. Together, those locations added up to more than $73.3 billion in sales last year -- as well as 4% net margins. To be clear, those are hefty levels of profitability for a mass retailer. In a business where one store is basically the same as the next, Target has done a great job creating a niche as a slightly more upscale big box chain.
The addition of fresh grocery sections to stores over the last several years has done its job of drawing customers into stores, but Target never saw the margin deterioration that most analysts were expecting as a tradeoff. As a result, the firm has had enough room on its balance sheet to significantly reduce its debt load in the last year and leave more value for shareholders, not lenders.
Target remains a best-in-breed retail name right now.
Las Vegas Sands
Las Vegas Sands (LVS) is a stock that's outgrown its name. Today, less than 15% of the firm's revenues actually come from Vegas -- the rest comes from Asia, thanks to a portfolio of big-ticket properties in Macau, Singapore and Cotai. But wherever those sales come from, they're funding some substantial debt reductions and dividend payouts in the last year. All told, LVS has paid out an 8.6% shareholder yield in the last year.
LVS owns the Sands, Venetian, and Palazzo names, as well as a Four Seasons franchise in Macau, laying claim to a handful of the most successful casino resort brands in the gaming industry. Sands has a winning recipe for building gaming properties around the world. As gambling becomes legalized in more and more spots around the world, that international success should do very well for LVS. In Sands' existing properties, it enjoys big barriers to entry. For example, casino megaresorts cost billions to develop, and in crown jewel locations such as Macau, competition is limited to the few firms that can grab one of just six licenses to operate casinos in China. LVS owns two of them.
Global discretionary spending should help spur growth in LVS -– even in Las Vegas. Chairman and CEO Sheldon Adelson owns more than 50% of Sands, a fact that puts management's interests in line with shareholders, and all but guarantees big shareholder yield payouts in the future. Earnings on Oct. 28 could provide the next hint at this stock's willingness to rewards its owners.
To see these names in action, check out the Shareholder Yield Stocks portfolio on Stockpickr.
-- Written by Jonas Elmerraji in Baltimore.
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At the time of publication, author had no positions in stocks mentioned.
Jonas Elmerraji, CMT, is a senior market analyst at Agora Financial in Baltimore and a contributor to
TheStreet. Before that, he managed a portfolio of stocks for an investment advisory returned 15% in 2008. He has been featured in Forbes , Investor's Business Daily, and on CNBC.com. Jonas holds a degree in financial economics from UMBC and the Chartered Market Technician designation.Follow Jonas on Twitter @JonasElmerraji
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