MEBISODE: A Better Approach to Dividend Investing

Episode Summary

Executive Summary: The episode argues that traditional dividend investing is too narrow because it ignores stock buybacks and share issuance. Using Morningstar’s dividend-fund research and Cambria’s live ETF SYLD as evidence, the hosts contend that a broader shareholder-yield approach has historically produced stronger results than dividend income, dividend growth, or buyback-only strategies.

Main Topics: Dividend investing’s appeal and limitations (Priority: 5/5): The episode opens by explaining why investors love dividend stocks—steady income and psychological comfort—but argues that focusing only on dividends misses a major part of how companies return capital. Shift from dividends to buybacks (Priority: 5/5): The discussion highlights a structural market change since the 1990s: companies increasingly return cash through stock buybacks rather than cash dividends, making dividend-only screens incomplete. Shareholder yield as a broader framework (Priority: 5/5): The core thesis is that dividend yield should be combined with net stock buybacks, including share issuance, to better measure total shareholder payout and identify stronger stocks. Evidence from historical and live performance (Priority: 5/5): The episode says backtests and real-world results support shareholder yield, and emphasizes SYLD’s decade-plus live track record as a stronger test than hypothetical simulations. Comparison against the dividend fund universe (Priority: 4/5): The hosts compare SYLD to a large set of dividend and buyback funds, arguing that it outperformed every one of them over the measured period. Caveats and investing risk (Priority: 3/5): The closing disclaimer stresses that dividends are not guaranteed, high-yield stocks can be risky, and past performance does not ensure future results.

Key Arguments: Dividend investing is popular, but a dividend-only framework is too restrictive because it ignores stock buybacks, which now represent a major source of capital return. A shareholder-yield approach that includes cash dividends plus net buybacks, while accounting for share issuance, is a more complete way to evaluate companies. Historical simulations suggest shareholder yield outperforms the broad market and dividend-focused strategies, but live performance is a stronger test than backtests. SYLD’s real-world track record since 2013 is presented as evidence that the shareholder-yield methodology can work across market cycles. The Morningstar study was useful, but the hosts argue it looked in the wrong place by focusing primarily on dividend strategies instead of total capital returned to shareholders.

Data Points: Dividend-focused funds universe: 348 open-ended mutual funds and ETFs - Morningstar’s report on dividend funds Assets focused on dividends: Over $1 trillion - Total assets across dividend-focused funds in the Morningstar report Hypothetical dividend yield: 3% - Used to illustrate cash dividends generated by the dividend-fund universe Annual cash dividends: $30 billion - Estimated cash dividends from the trillion-dollar dividend-fund universe at 3% yield Shareholder yield ETF launch date: May 14, 2013 - Inception date of Cambria Shareholder Yield ETF (SYLD) Live performance sample size: 188 funds - Funds included in the replication of Morningstar’s methodology, expanded to include buyback-focused strategies Performance period end date: 12-31-2023 - End of live performance comparison period SYLD annualized return since inception: 12.91% - Reported performance of SYLD over its live track record Fund closure estimate: About half - Rule of thumb for the proportion of funds that close or merge over a decade

Pivotal Quotes: "We believe they're looking in the wrong place." — Met Faber / host: Critique of Morningstar’s focus on dividend funds rather than broader shareholder returns "The thesis was that a more holistic approach, incorporating both cash dividends and net stock buybacks, was a superior way to sort and own stocks." — Met Faber / host: Core explanation of shareholder yield investing "SYLD outperformed all of them, every single one." — Met Faber / host: Summary of the live performance comparison against dividend and buyback funds

Implications: Investors should consider total shareholder payouts, not just dividends. Dividend screens may miss buybacks and dilution, while shareholder yield may offer a more robust way to find better capital-returning companies.