Cambria Investment Management thinks it’s found a better way to invest in dividend paying stocks. The Los Angeles-based investment advisor introduced an actively managed ETF that aims for higher income using an equity screen it calls “shareholder yield.”
The Cambria Shareholder Yield ETF (SYLD) is composed of U.S. stocks that have historically ranked among the highest in paying cash dividends, participating in share buybacks and paying down debt. These three factors are collectively known as “shareholder yield.”
Research conducted by Mebane Faber, Cambria’s chief investment officer and author of The Ivy Portfolio (2011, Wiley) showed that focusing solely on dividends may result in suboptimal performance results for investors. Instead, Faber emphasizes an approach consisting of the three shareholder yield components. According to his studies, this strategy produced a portfolio of companies that possess stronger free cash flow characteristics and generated higher shareholder yields than their dividend-only counterparts.
SYLD uses a quantitative algorithm to select 100 U.S. stocks with market caps greater than $200 million. As of May 23, 2013, the fund’s top three holdings include USANA Health Sciences, Boston Scientific, and CVR Energy.
The fund offers investors a diversified portfolio of companies, ranging in size, industry and sector, and is managed to ensure that no one sector is over-concentrated. SYLD also employs value, quality and momentum factors in the final portfolio selection. The fund expects to pay yearly dividends and charges annual expenses of 0.59%.
“Investors continue to search for income, but they should be wary of a narrow focus on dividends,” said Faber. “Historically, assessing stocks based on their collective shareholder yield is a strategy that has outperformed vanilla dividend investing. We believe investors need to look further than dividends when identifying companies with strong free cash flow characteristics.”