Biderman on ETFs, dividends and float shrinks.
So far this year investors have poured billions into high dividend strategy ETFs. Yet almost all the big dividend ETFs have underperformed the market, even after including reinvested dividends. On the other hand only millions have gone into ETFs whose strategy is based upon float shrink. Companies that have been shrinking the trading float of shares the most using free cash flow have not only significantly outperformed the high dividend ETFs, but the overall market as well.
Those of you who took finance 101 might have learned that there are two ways to distribute profits to shareholders. But before a company can distribute anything, the company first has to generate a cash profit, after taxes and after all capital expenditures. What is left is free cash flow that can either be added to the balance sheet or distributed to shareholders via dividends or float shrink.
Full video below.