Top 10 Dividend & Buyback Questions

I’m finally putting out this ebook, and thought I’d include a section with 10 FAQs on dividends and buybacks.

If you have any burning questions send them in!

Bloomy Black

I really like Bloomberg moving into this space, but my guess is they’re going to have to cut their fee in half – $1,200 for something people will see as an app seems way too much.

Buyback Echo

A nice summary from Hulbert:

“Buyback strategies aren’t nearly as time-sensitive, according to David Ikenberry, dean of the Leeds School of Business at the University of Colorado Boulder and one of academia’s leading experts on stock buybacks. In an interview, he said that he has found in his research that the average buyback stock outperforms the market in each of the four years following the company’s announcement of its share-repurchase program.”

Professor’s homepage here.

Sell in May or November Timberrrrr?

Repost from Oct 2010.  Will probably post again in 2016.


“Because I believe that all criteria for investing (that is, good betting strategies) should have a logic that isn’t time specific, I believe that the alpha generators that make up the ultimate alpha generator should be timeless and universal. By that I mean that they should have worked over very longtime horizons and in all countries’ markets.” Ray Dalio, Founder Bridgewater

Any trading system that is based on uncovering alpha, at least to me, must have a fundamental reason why the strategy works.  If you cannot explain why the inefficiency exists, or understand the fundamentals behind a technical strategy then you are likely just data mining.  I can get on board with the Presidential Cycle (source: NDR) as there are possible monetary reasons that strategy would work (artificial election year stimulus).  We are currently in the most favorable year (3) of the cycle being the pre-election year. Also Crossing Wall St.

One popular system many people discuss is the “Sell in May and Go Away” (also known as the Halloween Indicator) strategy.  The system simply invests in the stock market from November – April, then moves to cash from May – October.  This strategy popularized by Yale Hirsh (who writes the informative and entertaining Stock Trader’s Almanac 2011), has its origins in the U.K. market as far back as 1935 (see must read paper “Are Monthly Seasonals Real?“).

The paper finds very strong evidence of abnormal performance in the UK since the 1600s, and Bouman and Jacobson (2002) find that the strategy works in 36 of the 37 countries they tested.

This strategy has performed mightily since 1950 in the US as the chart below indicates. This is what is great about the investment blogosphere – the velocity at which an idea whips around and lots of people can comment on it and share their input…Lots and lots more chatter here on: Abnormal ReturnsHulbert,and CXO.

If you take the strategy back to 1900 in the US, the results do not confirm for the first half of the century.  You have to ask yourself “What is the fundamental reason this strategy works?”  Some offer Seasonal Affective Disorder, holiday good tidings, pension flows, summer vacation, and tax season in April…

In any case, the new period starts Monday!


Cannibals and Capital Destroyers

I created this chart today to see how many of the S&P 500 stocks had a positive net payout yield (dividends & net stock buybacks).  Turns out it is most, nearly 80%, which is great (R2K is less around half which is not surprising due to their smaller size, etc.)

Here is the chart.  I excluded the 10 worst capital destroyers as it caused the chart to scale funny.  Interestingly enough, half of the 100 or so companies with a negative payout yield actually had a positive dividend, including eleven over 3%.  



Trillion $ Mistake

We sent out the below to The Idea Farm list recently, and the chart was so good I had to share it here.  

John Del Vecchio is a rare forensic accountant that sees opportunities both long and short (he runs funds on both sides including the new forensic accounting ETF).  He did a short piece recently that isn’t publicly available,  but touches on one of the biggest mistakes in investing – ignoring valuations and going with market cap indexes.  We’ve done a lot of blog posts on the topic, including this one on Apple in 2011:  ”Apple – Too Big To Succeed?”    

JDV includes this great chart that illustrates investing in the largest company in the US….good idea? 



PDF Download

The Trillion Dollar Mistake

PS: In the month since The Idea Farm went private we’ve featured some great research:
  • 5 New Asset Classes with SocGen (upcoming)
  • Macro Updates with Cornerstone  (upcoming)
  • Inflation expectations and commodities with Guggenheim
  • Cantor on Kamikaze QE
  • McClellan on copper inventories
  • Fundamental improvements with Janiczek
  • and our GTAA paper update.
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Travel: SF Speech Saturday

Technically this is in San Jose, but chatting early Sat AM with the AAII crowd, come say hello!

“Shareholder Yield: A Better Approach to Dividend Investing “


Discussed by:

Mebane Faber
Chief Investment Officer, Cambria Investment Management 


Attend This Meeting and Learn…
How to find returns in a low return world
Why focusing on dividends alone is a mistake
A better approach to income investing


Saturday, May 4, 2013
9:00 a.m.    Registration/Social/Coffee & Tea (No Breakfast)
9:30 a.m.    Program
11:00 a.m.    Q&A
NEW LOCATION! San Jose Airport Garden Hotel 
1740 N 1st St.
San Jose, CA, 95112
Map This Location ] 

In Advance (Mail postmarked by 4/27 
or Online by 4/30) 
Everyone, $25/person
Late Registration (Online by 5/2) Everyone, $35/person
Register online
At the Door
Space permitting.
Everyone, $35/person
No Refunds

Another Dividend Mistake

There are lots of cliches you hear when people are discussing dividends and buybacks.  Realize one of the biggest benefits of including net buybacks in your calculation rather than dividends alone is not necessarily including the companies that are reducing share count, but also avoiding the companies increasing it.

I ran a quick screen on the S&P500.  Of the 20 highest dividend yielding stocks, FIFTEEN had share counts that were increasing!  In some cases the share count swamped the dividend yield, actually turning the total amount of cash returned to shareholders into a negative number.  This is sort of a silent but deadly killer.  Investors think they are getting a nice return of cash, the really they end up owning less of the business.  Of the 30 worst companies with the biggest increases in shares outstanding, 18 had dividend yields over 2%.

Below is a simple graph of the stocks in the S&P with mkt cap weighted yields on the vertical axis.  



0.1% Management Fee and 10% Performance Fee Above S&P500

Fun article on the internal hedge fund managers at Berkshire.

Closer Look at the CAPE Ratio

Below is a fun webinar put on by Shiller/Barclay’s/IndexU.  Who better to hear chat about CAPE than Shiller?

My only comment is I think their current values on the consumer disc/staples are way off…but fun to hear them talk about CAPEs of railroads for the entire 20th Century!  Also good to hear they are doing research in foreign countries and sectors…


Topics covered include:

  • Long-term sector valuation: CAPE ratio
  • Applying the momentum signal to avoid the “value trap”
  • Best practices for both strategic and tactical use of CAPE



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