Yield Generators: 3 Stocks Enhancing Shareholder Value
Several stocks recently unveiled plans to significantly enhance shareholder value. These plans include the two major types of capital returns that investors often pay attention to: dividends and buybacks. Dividends mean direct cash going into investors' pockets, while buybacks help raise earnings per share, potentially leading to stock appreciation.
However, another less-discussed form of yield comes from debt paydown. When companies pay down a large debt, it lowers their riskiness. Based on financial modeling, less risk often increases the value of a company’s stock. Let’s dive into these three companies that have outlined intentions to provide yield to investors.
THO: RV Leader Points to Undervaluation in Its Shares
THOR Industries (NYSE: THO) has announced a significant new buyback program worth $400 million. THOR is the world’s largest manufacturer of recreational vehicles (RVs), owning dozens of brands including Airstream and Jayco. This buyback program is large, equal to approximately 8.1% of the firm’s market capitalization. Based on current prices, this figure is equal to the buyback yield the firm could offer investors.
Unlike many buyback announcements, THOR explicitly states that it sees its shares as undervalued. The company noted that from June 6 to June 23, it repurchased over 340,000 shares of THO. Based on June 6 prices, that equates to over $29 million in buyback spending. The company said it will "continue to be buyers of our stock as long as its price is disconnected from our long-term value proposition."
Shares have increased by only about 8% since June 6, suggesting the company likely sees its stock as undervalued. Therefore, it will probably continue to buy shares back. Notably, the buyback authorization ends on July 31, 2027, suggesting the company could use its entire capacity in just over two years. The company also has a dividend yield of 2.2%, adding to its yield generation thesis.
FICO: Credit Score Dominator Announces $1 Billion Buyback Program
On June 19, Fair Isaac (NYSE: FICO) announced the approval of its new share buyback program. It allows the company to repurchase up to $1 billion worth of stock. Fair Isaac is the creator of the FICO credit score. It holds a powerful market position as the FICO score is the de facto point of reference for many lenders when evaluating a borrower.
This is a moderately sized buyback program for the approximately $45 billion company, equating to around 2.2% of its market capitalization. Fair Isaac has spent an average of $189 million on buybacks per quarter over the past three years. However, it has significantly stepped up its spending over the last 12 months, spending nearly $300 million per quarter.
This trend and the new buyback announcement suggest the company may see its shares as undervalued. As of the July 3 close, the stock is trading around 21% below its all-time high closing price reached in November 2024. Wall Street analysts seemingly support the notion that Fair Isaac looks undervalued. The MarketBeat consensus price target on the stock is $2,304, implying upside of over 24%.
DAN Looks Poised to Deliver a Yield Triple-Whammy
Last up is Dana (NYSE: DAN). The company makes a variety of automotive parts, including axles, driveshafts, and transmissions. Recently, the company outlined plans to massively reduce its debt and return capital through dividends and buybacks. This comes as the firm will sell its off-highway business to Allison Transmission (NYSE: ALSN), generating net proceeds of $2.4 billion. The company plans to use these funds to pay down $2 billion worth of debt.
For a company with a market cap of only $2.6 billion, this is a huge amount of debt to pay down. It would result in a debt paydown yield of 77%. Note that this doesn’t mean shares will rise 77% or close to that. However, this paydown makes the firm much less risky and puts it in a better financial position. This could help raise the company’s valuation as it pays down this debt over time. Additionally, the company plans to spend a combined $1 billion on dividends and buybacks through 2027. That is equal to over 38% of the company’s market cap. The stock’s current dividend yield is 2.2%.
Overall, it is important to understand that yield to shareholders can take many different forms. Dana stands out due to its intention to robustly utilize all three pathways to generate value for shareholders.
Learn more about THO
