Shareholder Yield
Shareholder Yield is the total cash that shareholders receive from the company in the form of dividends, debt relief, or share buyback. When an investor buys any company’s share, they expect to get a return from the share which reflects the company performance. Shareholders are the owners of the company, so they want to see the company making a profit, expanding, and reinvesting for more returns.
Shareholder Yield reflects the amount of cash that the company pays back to the shareholders. Most of us may pay attention to the dividend yield which shows the amount of cash company pays to the shareholder. However, it will not tell the whole story, company can also pay investors by buying back the share at a higher price. Sometimes it is even higher than the market price.
Investors put money into the company share with the expectation of getting a return in form of dividends. Some company shares do not provide high dividends due to the low profit, but they generate high capital gain when the price increase.
When the market price increase, investors can sell the stock and get the money back. It includes the initial investment and capital gain. The share issuer may spend more cash to repurchase the stock as well. The company intends to reduce the number of shares outstanding and gain ownership back from investors.
Shareholder Yield Formula
Shareholder Yield = (Dividend + Net Share Repurchase + Net Debt Payment)/Market Capitalized
- Dividend: is the amount of cash a dividend company paid to shareholders.
- Net Share Repurchase: is the amount difference between a new share issue and share repurchase.
- Debt Payment is the amount difference between new debt and debt payment.
Example of Shareholder Yield
Company ABC is a listed company with a market capitalized at $ 100 million. During the year, management has made the following transactions related to share and debt:
- Issue new share to and receive the capital of $ 15 million
- Spend $ 30 million to buy back existing shares from the market
- Paid dividend of $ 5 million
- Paid the existing debt for $ 4 million
Please calculate the shareholder yield.
Shareholder Yield = (Dividend + Net Share Repurchase + Net Debt Payment)/Market Capitalized
Dividend = $ 5 million
Net Share Repurchase = $ 30 million – $ 15 million = $ 15 million
Net Debt Payment = $ 4 million
Market Capitalized = $ 100 million
Shareholder Yield = (5 + 15 + 4)/100 = 0.24 = 24%