Morningstar explains why total shareholder yield, which combines dividends and buybacks, may be a more useful framework than focusing on dividends alone. The piece challenges the idea that dividends represent true income, arguing they are simply a return of capital. It also suggests dividend-focused strategies can unintentionally reduce diversification and overlook key drivers of returns.
Why Total Shareholder Yield Matters More Than Dividends
Morningstar
Larry Swedroe
Article
6 Pages
Key Takeaways
Dividends Not Special: Dividends are labeled tax-inefficient and not true income, as they do not increase investor wealth despite often making up 100% of perceived cash flow.
Stronger Return Signal: Total shareholder yield shows a clearer relationship with future returns across deciles, outperforming dividend-only metrics in both US and international markets.
Diversification Tradeoff Risk: Dividend screens exclude a large share of stocks, with many companies paying 0% dividends, leading to less efficient portfolios without higher expected returns.
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