Stocks That Pay You Back

In this low-interest rate environment, investors are understandably looking for stocks that pay meaningful dividends. However, many companies continue to use stock buybacks to return shareholder cash in lieu of dividends. For the quarter ended December 2010, S&P 500 companies bought back $86 billion of stock and paid out $55 billion in dividends. Frankly, I'm generally not a big fan of buybacks and think dividends are a better deal for most individual investors.

When I spoke with NYU professor Aswath Damodaran in February, he suggested that in light of the buyback reality, investors should consider the "augmented" dividend yield, which combines the cash dividend yield and the stock buyback yield. I've since applied the augmented dividend yield to my regular stock screens and focus on those stocks with a cash dividend yield higher than 3% and an augmented dividend payout ratio below 100%.

Source: Motley Fool

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