The Power of Total Shareholder Yield
The debate of which is better Dividends or Share Buybacks is as alive as ever but I think we can skip the whole discussion by focusing on Total Shareholder Yield.
This number gives us insight into 3 parts of a stock. First the dividend yield, second the total buyback yield, and third net debt reduction.
The formula looks a little like this:
For instance $T has a dividend yield of 6.44% but because of additional buybacks the payout yield is 8.5%. But because the company has continued to pile on debt with a debt paydown yield of -12.4% the total shareholder yield is -3.9%.
By combining Dividends and Buybacks with Debt Paydowns we get a much better insight into how the business it treating its shareholders.
How do you calculate debt pay down yield?
@rpinvestments to use an example it would be the total average debt ( long term + short term) of a company from the four quarters Januray 2021 to January 2022 MINUS the total average debt from the most recent 4 quarters September 2021 to September 2022.
So you go back 6 quarters and look at the average debt over the next 4 and then subtract that from the total average of the most recent 4 quarters.
It is confusing at first but once you read it a few times you begin to understand. Heres the offical definition from YCharts.