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Friends,

Last week, we talked about how the stock market -- before the Great Depression -- was like the Wild West.

There was no SEC, no conference calls, no mandatory filings, nothing. Investors were in the dark about how their companies were performing.

The only way a business proved that it was generating profits was by sending its investors a dividend. So long as your broker received a payment every quarter, the company was (most likely) generating real profits.

Back then, the average S&P 500 stock was yielding 6%.

Today, that yield is down to just 1.5%.

Does that mean the days of management teams are not returning cash to shareholders like they used to?

Not at all.

That's because share buybacks have become a far more popular way for management teams to return cash to shareholders.

When a company buys back its shares, there are fewer shares in total. That causes each remaining shareholder's claim on profit to increase, which leads to an increase in earnings on a per-share basis, even if net income remains flat. That causes the share price to increase (at least in theory).

Buybacks have been popular for many reasons, one of which is tax efficiency. Investors have to pay taxes on dividends but not on buybacks.

This is why we think that shareholder yield -- which factors in dividends, net share buybacks, and net debt paydown -- is a much better metric to watch than dividend yield.

Consider three FAANG stocks:

• In March 2019, Apple's shareholder yield was 11.3%. Since then, shares have returned over 300%.
• In September 2022, Meta's shareholder yield was 11.1%. In just 10 months, shares have doubled.
• This January, Alphabet's shareholder yield was 5.2%. Since then, the stock is up 50%.

When Warren Buffett first bought Apple -- now his largest holding by far -- the company's dividend yield was just 1.9%. However, Apple's shareholder yield at the time was over 7%. That likely played a massive role in his decision.

This isn't to say buybacks always turn out well. History is littered with companies that spend billions on buybacks and then went bankrupt (airlines, banks, retailers...etc).

What we are trying to say is that investors should stop looking at dividend yield alone and start focusing on shareholder yield. Doing so factors two extra data points when figuring out whether or how to value a company.

If you want to go deeper into how valuation works, join us for the second cohort of Valuation Explained Simply, which starts in less than a week.

In the course, we'll cover four valuation methods -- Total Addressable Market, Common Multiples, Discounted Cash Flows (DCF), and Reverse DCFs -- in detail to show how professional investors value businesses.

Reviews from our first cohort in March were great (9.2 out of 10 and a perfect 100 net promoter score). If valuation interests you, we hope you join us.

If that interests you, use the code LASTCALL149 at checkout to knock $149 off the price.*

Whether you decide to join us or not, we want to wish you a highly valuable week of summer,

- Brian Feroldi, Brian Stoffel, & Brian Withers

P.S. The code LASTCALL149 expires this Sunday (August 6th) at midnight EST.

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One Piece of Timeless Content:

While we regularly expound on the virtues of always staying invested, this beautiful short story by Albert Bridge Capital talks about the importance of staying in another type of 'game.'

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Whether you are 30 or twice that age, it's never too late to start good financial habits.

Kenny | Accent Investing @AccentInvesting By age 30, you need to master these money skills if you want to be 10 years ahead financially. 7:52 AM • Sep 7, 2022 12835 Retweets 52418 Likes Read 402 replies

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One Resource:

Each quarter, JP Morgan releases their updated Guide to the Markets presentation. It's filled with valuable charts & graphs on equities, fixed income, and the economy. It's well worth your time.

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More From Us:

👨‍🎓 The next cohort of Valuation Explained Simply starts on August 7th. Use the code LASTCALL149 at checkout to knock $149 off the price.

📗 If you've read Brian Feroldi's book, he'd love a review.

👨‍🎓 Interested in learning to read financial statements? Get on the waiting list for our live Financial Statements Explained Simply class, or purchase the replays & materials here​.

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