IFB72: Shareholder Yield Metric: Cheap Stocks with Good Capital Allocation

Welcome to Investing for Beginners podcast, this is episode 72. Tonight Andrew and I are going to talk about shareholder yield, this is a term that I came across when I read a book by Meb Faber. One of my favorite podcasters, he’s a quant investor that runs a ETF that he’s a fantastic guy really interesting super smart and sometimes he can be a little technical.
But he’s very interesting and he wrote some great books that are on Amazon and quite a few of them were actually free. So the book that we’re going to talk about tonight that we’re going to reference let me rephrase that is actually free and I will put the link to that in the show notes. If you guys want to check out a little more deep dive into what Andrew and I are going to be talking about tonight that’ll give you an opportunity to check that out so well then further ado Andrew once you go ahead and start us off and talk a little bit about shareholder yield and capital allocation.
Andrew: yeah so shareholders yield a metric it’s a good kind of description for a metric where you’re essentially looking at a CEO management of a company and seeing how are they allocating capital. You have earnings that you get right profits up that these companies have and as we’ve mentioned in previous episodes two to three episodes ago these companies have various decisions that they can they have various purposes that they can use this cash that they have for.
And so shareholders yield is a measure to evaluate that and it can identify companies if there’s a high shareholders yield can identify companies that are really rewarding shareholders giving a lot of that cash and giving it back to shareholders and it doesn’t have to be in the form of a dividend that’s why it’s different than like the dividend yield.
You have essentially the five ways that they can pay back shareholders and so they can reinvest back in the company and that’s good if the business if the core business is growing they can do a an acquisition a merger and acquisition. Where you’re they’re buying another company hopefully saving money by combining operations and obviously growing earnings and revenues in that way.
They can pay down debt they can repurchase shares we talked about that extensively with the share buybacks episode and they can pay dividends.
What we’re going to talk about today I think really gives a nice little measure and a way that you can take it one step further right. So we took the time to really introduce these kind of things and talk about them from a theoretic level. Hopefully you were able to learn that if you haven’t listened to those two episodes I definitely recommend doing that.
But understanding the how it works and what these things are and then now this is a good idea of how you can apply it and use it practically to find good businesses good stocks to buy.
I really liked the book that Meb Faber wrote shareholder yield he had like really cool kind of metaphor about the way some investors will look at stocks so he talks about this concept some I don’t know it feels like a legend or just a story.
but there’s six blind men right and they’re all told to touch this elephant and they’re told to describe what this elephant is what it feels like and then kind of make some conclusions based off of that. One blind man might touch the tusk one might touch the tail one might touch the side or the bottom of his belly and they all describe different things but neither of them not one of them if they’re all just touching this one place they’re not able to accurately describe the whole picture and so when it comes to investing and buying stocks a lot of investors can fall into that trap as w...