This Underrated Indicator Can Bring You a Huge 14.6% Return

If you’re like me, when you see a huge dividend yield, you stop for a second and immediately do the mental math. How much will we receive in payouts from, say, a 9.3% payer if we invest $10,000? Or $20,000? Or $100,000?

But we are savvy opponents, we know set aside that initial reaction and look deeper.

Because (as we contrarians know), such high returns can (and usually are) a sign of danger.

In fact, rising dividends are just one possible reason for the high payout.

In fact, this is the least likely.

Most often, high returns are associated with what we want. no part: fall in stock price. Dividends are “expensive” Verizon Communications (VZ)with a current yield of around 6.5% as of this writing, is an example here.

With such profitability, the main investors power I think that VZ holders are happy to receive increase in payments after increase. I mean they have saw the dividend increase, but I’m not sure they’re happy with it! EOI “raises” are usually only about a penny a year.

Over the past five years, VZ’s dividends have increased, but only by about 10%. You and I both know that inflation was far above that level – and the meager growth was not enough to attract new investors to the share price. During this time it decreased by 31%.

Heck, even if you include dividends, VZ’s total return is still over this period by 9% – at a time when the S&P 500 index gained 108%!

This is all a (possibly long-winded!) way of saying that we need to go beyond the shiny appearance of high yields. I have a proven tool for this, which we’ll talk about next. We’ll dive deeper into two “real” dividend producers so you can consider them too.

Shareholder Yields are struggling Dividends A harvest in every way

Ultimately, dividend stocks can pay us in three ways:

• Current payout: These are, of course, dividends that we receive after the purchase.
• Dividend growth which increases the return on our initial purchase and acts as a “magnet” to the share price, with increasing payouts pushing the share price higher.
• Share buyback, which reduced the number of shares outstanding, increasing earnings per share and other per share metrics.

Buybacks get a bad rap, but they shouldn’t because if they’re done correctly (i.e. when the stock is cheap), they can seriously increase our profits. This is another problem with current yield – this tells us nothing about the effect of buybacks.

This is where my favorite metric of how a company rewards shareholders comes in. It’s called shareholder returnincluding buybacks And dividends.

Lockheed shareholder returns soar

To see this in action, let’s look at Lockheed Martin (LMT), It is best known for creating the F-35 joint strike fighter and the weapons and sensor systems that are the backbone of militaries around the world.

While the stock has risen strongly over the last few years, partly (but not entirely, as we’ll see in a second) due to increased global instability, the mainstream, now income-focused crowd would hardly give it the time of day given its low dividend yield of 2.3%.

But let’s ignore that for a second and consider Lockheed. increase in paymentswhich has been strong: The dividend has grown by about 38% in just the last five years. This definitely affected the share price, pushing it up at the same time:

In fact, we could say LMT stock is slightly outperforming the payout here. That partly explains why the company’s shares have fallen over the past few days, as its third-quarter revenue fell slightly short of expectations in its recently released earnings report, although LMT beat net income and raised its full-year guidance.

And because of this increase in payouts, people who bought LMT just five years ago are now receiving 3.5% on their original purchase. Of course, this doesn’t completely blow our minds, but it is about 50% higher than today’s current yield of 2.3%.

Now let’s move on to buybacks: Over the past five years, Lockheed has pulled 16% of its shares from the market, making all of these per-share numbers look better. By the way, if you don’t think buybacks matter, look at how LMT’s share price has risen since 2022, when management Really strengthened its buyback campaign.

The advantage of shareholder return is that it combines all three types of shareholder rewards: current dividends, growth payouts, and buybacks. Let’s see how to calculate this – then I will suggest you buy even better shares with higher returns for shareholders.

How to Calculate Shareholder Return

To calculate shareholder return, take the amount the company spent on share repurchases over the previous 12 months and subtract any cash it received through shares. releases, then add the total amount spent on dividends.

You then take that amount and divide it by the company’s market capitalization, or the value of all its shares outstanding.

In LMT’s case, that amounts to $3.05 billion spent on dividends and $5.7 billion spent on buybacks, for a total of $8.75 billion in total shareholder returns over the last 12 months. Given a market capitalization of $132.9 billion, we can say that Lockheed has a shareholder yield of 6.6%, which is almost three times the current dividend yield of 2.3%.

Outside of LMT: This stock’s shareholder return fell a staggering 14.6%

If you read last week’s article, you know that I’m bullish on oil refineries: the price of their main feedstock, oil, has fallen.

Meanwhile, demand for their finished products – mainly gasoline – will rise as the no-landing scenario I predict (where the economy continues to grow but inflation returns) plays out.

And lucky for us, oil refineries offer some of the highest returns to shareholders! Consider Valero Energy (VLO)third largest oil refinery by market capitalization, second to Marathon Petroleum (MPC) And Phillips 66 (PSX).

Although VLO’s current yield is only 3.2%, the return to its shareholders is much higher. Over the last 12 months, VLO spent $1.4 billion on dividends and $4.8 billion on share buybacks, for a total of $6.2 billion in all shareholder compensation. Divide that by VLO’s market capitalization of $42.6 billion and you get a shareholder return of 14.6%.

Fourteen point sixty percent!

Shareholder friendliness is one of the reasons the stock is liked. Its recent disappointing earnings report doesn’t change the tailwind it faces and creates a buying opportunity.

Brett Owens is the company’s chief investment strategist. Opposite View. For even more great income ideas, get a free copy of his latest special report: Your Early Retirement Portfolio: Huge Dividends—Every Month—Forever.

Disclosure: none