Investors Seek Shelter in Shareholder Yield Strategy Amid Market Uncertainty

Investors may find it beneficial to adopt a shareholder yield strategy in their portfolios, particularly during uncertain market conditions. Shareholder yield is calculated by adding dividends and share buybacks to earnings per share (EPS) growth.

The chart shows that PE ratios have historically expanded and contracted, but the main drivers of equity market returns are actually dividends, EPS growth, and price-to-earnings (PE) ratios. Dividends have remained a positive contributor to total return over time, despite their impact declining somewhat since the early 1990s.

The decline in dividend contribution can be attributed to major regulator changes in the US that made share buybacks a tax-efficient alternative to cash dividends. However, share buybacks are still a mechanism for returning cash to shareholders and driving EPS growth.

Cisco Systems (CSCO) is an example of a company that embodies the characteristics of reliable dividend payers. It has a growing stream of recurring service revenues across networking, security, and collaboration, supporting cash flow growth and requiring lower capital expenditure. The company prioritizes returning cash to investors through share buybacks and dividends.