How do you calculate buyback yield and total payout yield for equity valuation?

Buyback yield measures the percentage of market capitalization returned to shareholders through share repurchases, while total payout yield combines both dividends and buybacks.

Formulas:

Buyback Yield = Net Share Repurchases / Market Capitalization

Total Payout Yield = (Dividends + Net Buybacks) / Market Capitalization

Net buybacks = Gross repurchases minus new shares issued (from stock compensation, secondary offerings, etc.)

Worked Example — Glendale Manufacturing (fictional):

Item	Amount
Market cap (start of year)	$8.0 billion
Annual dividends paid	$160 million
Shares repurchased	$400 million
New shares issued (stock comp)	$80 million

Step 1 — Dividend Yield: $160M /$8,000M = 2.00%

Step 2 — Net Buyback: $400M -$80M = $320M net

Step 3 — Buyback Yield: $320M /$8,000M = 4.00%

Step 4 — Total Payout Yield: ($160M +$320M) / $8,000M = 6.00%

Why This Matters:

Many mature companies prefer buybacks over dividends because:

• Buybacks are more tax-efficient — capital gains are taxed only when shares are sold
• Buybacks are flexible — they can be adjusted without the negative signal of a dividend cut
• Buybacks reduce shares outstanding, increasing EPS mechanically

A company with a 1.5% dividend yield but a 4% buyback yield is actually returning 5.5% to shareholders — far more than the dividend yield alone suggests. Ignoring buybacks would make such a company appear stingy when it is actually very shareholder-friendly.

Exam Tip: The CFA exam tests whether you can compute total payout yield and understand why dividend yield alone is an incomplete measure of cash returned to shareholders. Be careful to use net repurchases (subtract new issuance).

Practice more payout analysis in our CFA Level I question bank.