Market Overview

The Other Shareholder Reward To Consider

The Other Shareholder Reward To Consider

When it comes to the two primary forms of shareholder rewards – buybacks and dividends – dividends seem to get most love because, most of the time, they're delivered in cash and also because buybacks have recently drawn the ire of politicians from both parties.

Still, there is no denying tax efficiencies and potency of buybacks. In the world of exchange traded funds, some ETFs address dividends, others focus on buybacks while other funds combine the two into a concept known as shareholder yield. The WisdomTree U.S. Quality Shareholder Yield Fund (NYSE: QSY) is one of those funds.

QSY's components generally have quality traits though a fair amount of the fund's roughly 140 holdings can also be considered value stocks.

Why It's Important

Share buybacks have become the other dividend. According to Qing Li at S&P Dow Jones Indices, S&P 500 Index companies purchased $806 billion worth of shares last year,” said WisdomTree in a recent note. “For context, the total value of the S&P is $26 trillion.”

QSY has a dividend yield of 1.75%, which is 15 basis points below that of the S&P 500. Not all of QSY's member firm pays a dividend, but many of the ones that do either have long dividend increase streaks or have recently started becoming credible dividend growth plays.

The ETF allocates almost 39% of its weight to the technology and consumer cyclical sectors, two groups where buyback and dividend growth often intersect.

QSY “targets heavy ownership of companies in the high quintiles” of shareholder yield, according to WisdomTree.

Data confirm as much. Over 78% of the fund's holdings reside in the top two quintiles of shareholder yield.

What's Next

QSY's total shareholder yield, dividend yield plus buyback, is around 8%, a simply staggering percentage relative to broader U.S. equity benchmarks. The shareholder yields on the S&P 500 and Russell 1000 Value indexes are 4.6% and 4.8%, respectively.

QSY is beating the Russell 1000 Value Index by nearly 200 basis points year to date.

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