Net payout return: An alternative to the traditional returns approach based on dividends and share repurchases

- We find that historic equity returns are lower when equity issuance is accounted for.
- An end-quarter pattern is apparent with respect to share repurchases/equity issuance.
- We find both a sector and market size bias with respect to changes in equity capital.
- We confirm that changes in firm equity capital is highly cyclical in nature.

We examine two alternative measures of equity returns incorporating stock repurchases as well as dividends, the other incorporating new equity issuance. We compute stock returns for 30 S&P 500 firms using all three approaches and find that stock repurchases have on average increased average annual returns by almost 2% and geometric returns by +1.6% per annum, whilst new share issuance reduces average returns by 1.1% a year. We also find similar results at the aggregate portfolio level. We argue that investors should be concerned about total shareholder flows and not the amount of cash distributed through any particular channel.