Make Money From Dividends and Stock Buybacks the Easy Way

Dividends offer cash, and stock buybacks can boost the value of your shares.

Apr 7, 2014 at 4:01PM

Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some companies offering significant dividends and stock buybacks to your portfolio but don't have the time or expertise to hand-pick a few, the Cambria Shareholder Yield ETF (NYSEMKT:SYLD) could save you a lot of trouble. Instead of trying to figure out which stocks will perform best, you can use this ETF to invest in lots of them simultaneously.

The basics
ETFs often feature lower expense ratios than their mutual fund cousins. This ETF, focused on dividends and stock buybacks, sports an expense ratio -- an annual fee -- of 0.59%. The fund is fairly small, too, so if you're thinking of buying, beware of possibly large spreads between its bid and ask prices. Consider using a limit order if you want to buy in.

This dividends-and-stock-buybacks ETF is too young to have a meaningful track record to assess. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.

Why dividends and stock buybacks?
It's smart to seek out healthy dividend-paying stocks, as they will deliver in good times and bad, and dividends tend to grow over time, too. Stock buybacks can also deliver for shareholders, reducing a company's share count so that remaining shares are worth more. (Not all stock buybacks are smart, though. A company buying back overvalued shares is actually destroying value.)

More than a handful of companies offering dividends and stock buybacks had strong performances over the past year. Seagate Technology (NASDAQ:STX) surged 63% and yields 3.1%. (It has more than quadrupled its dividend payout over the past five years.) Alongside rival Western Digital, Seagate Technology controls 85% of the hard-drive market. A shift toward 3-D NAND in the flash memory industry is likely to boost Seagate's fortunes, and its memory offerings can serve the growing big-data industry well. Between dividends and stock buybacks, Seagate returns about 70% of its operating cash flow to shareholders.

Marvell Technology (NASDAQ:MRVL) jumped 58% over the last year and yields 1.5%. The chipmaker is benefiting from the strong growth in storage and mobile communications, as it counts among its customers leaders in various industries. (Seagate and Western Digital, for example, generated 36% of its 2013 revenue.) The growing LTE market in China will also serve as a tailwind for Marvell. The company was recently fined $1.5 billion in a patent lawsuit, but that was far less than was originally demanded, and Marvell is appealing the decision. The company topped expectations in its fourth quarter.

Frontier Communications (NASDAQ:FTR) gained 47% and yields a hefty 7.2%. It carries considerable debt, though, which could threaten that payout, and it doesn't appear to be performing as well as its peers. (Big interest payments can constrain stock buybacks, too.) Not helping its debt situation is its decision to buy AT&T's wireline business and statewide fiber network in Connecticut for $2 billion in cash. Frontier has been shifting its focus from landline operations toward higher-margin businesses such as broadband and serving business customers. Its fourth quarter featured roughly flat revenue, which was better than the loss that had been expected, while its earnings also delivered a surprise by growing a bit.

L-3 Communications (NYSE:LLL) advanced 44.5% and yields 2.1%. While the company is more nimble than some rivals, it's also quite dependent on the U.S. government for much of its revenue and has been hurt by military spending cutbacks. Still, L-3 has been winning lots of defense contracts lately. Over the past few years, though, revenue, free cash flow, and earnings have been shrinking, as have operating margins. Bears don't expect 2014 to be as strong for the company as 2013.

The big picture
If you're interested in adding some companies offering dividends and stock buybacks to your portfolio, consider doing so via an ETF. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.

9 rock-solid dividend stocks you can buy today
One of the dirty secrets that few finance professionals will openly admit is the fact that dividend stocks as a group handily outperform their non-dividend paying brethren. With this in mind, our top analysts put together a free list of nine high-yielding stocks that should be in every income investor's portfolio. To learn the identity of these stocks instantly and for free, all you have to do is click here now.

Selena Maranjian has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information