Investing in stocks is risky business. That's why it's always nice to find a company that makes a habit out of rewarding you for taking on that risk of ownership. When everyone thinks about how stocks reward us, they think about dividends, but share repurchases are another huge way companies effectively return money to shareholders.
Not all dividends and share repurchases are created equal, though. Sometimes a company is holding back, and other times they're spending more than they can afford and will probably have to restrict future generosity. To figure out where everyone's favorite index, the Dow Jones Industrials Average
She's giving you all she's got, cap'n!
Given that the Dow yields 3% on average, below its historic mean, and that we've seen record corporate profits coming out of the recession, it's tempting to think companies are holding out on us, but that's not the case on the Dow.
On average, the Dow has returned 91% of its earnings to shareholders over the past five years. Complain as we may about companies that don't reward us enough, that's not bad. While there is technically a little room left for more handouts, it's about as high as we can reasonably expect.
A penny earned is two spent
Looking at specific companies reveals some surprising results. In what seems like typical reckless Wall Street fashion over the past few years, Bank of America
But B of A isn't even the worst offender over the past five years. That honor goes to Alcoa
These trends are clearly unsustainable -- and it's not just B or A and Alcoa, either. More than 40% of Dow stocks paid out more than they earned over the past five years.
Who does it right?
On the flip side, Caterpillar
You could argue that GE should have bought back a few more shares when they were trading at dirt cheap 2009 levels, but when you're looking at investing in a company over the long term, it's more important that it's able to sustain those payments than anything else. In addition, 2009 was a time of such high uncertainty and weakness inside GE that having kept money in-house to shore up GE Capital will probably pay more outsized gains over the long run than some timelier share repurchases.
There is a better way
With the Dow yielding 3%, but paying out almost everything it has, it's unlikely we'll see things go even higher. But you can still get huge yields elsewhere -- yields that could get even bigger. Check out our list of nine rock-solid dividend stocks. You can learn about the companies that made the cut -- including some great non-Dow names -- by reading our totally free special report.