Just thought of an easy way to think of this: Repurchase Yield = - (Shares Outstanding at T+1 / Shares Outstanding at T+0) And then… Delta S = -1 * (Repurchase Yield) Hopes this helps someone out there. Just remember, if the shares are decreasing, it increases the return.
Just to add my two cents to this seemingly closed topic. The CFA problem states that the Equity Repurchase Yield was -0.5%. So the company didn’t buy back anything, it issued 0.5% more resulting in a lower income return because of dilution.
Literally one of the worst often tested topics in the CFA. In my 15 years in the industry I have never heard this formula even mentioned once. Not at work, not in grad school and not during any other certification program. The CFAI is really out in left field with this one. Could easily be replaced with something relevant.
Reading 23, P4. Just another way to test this G-K Model…endless way.
cfahead Wrote: ------------------------------------------------------- > If the question gives the equity repurchase yeild > as negative.5% should that be added or taken away > from the Dividend yield? With regard to the confusion over whether what to do with the variable when the words ‘repurchase yield’ appear again, I just want to say that the meaning of repurchase yield is demonstrated on the CFAI text example below. I have started re-reading through all the examples provided by the text in the final week running up to the actual exam. This ‘confusion’ is a classic example of the importance of reading through all the examples in the text. The examples in the text are NOT written by the original authors of the books but inserted by CFAI themselves. So these examples are extremely important. “The forecast dividend yield was 1.75 percent (somewhat above the then-current yield of 1.4 percent but below the historical mean of over 4 percent for 1926–2001). The repurchase yield was forecast to be 0.5 percent, down from the 1–2 percent rate of the 1990s, which was viewed as an unusual period. The expected income return was there- fore 1.75% + 0.5% = 2.25%.” (Level III Volume 3 Capital Market Expectations, Market Valuation, and Asset Allocation, 4th Edition. Pearson Learning Solutions p. 36).
if a repurchase yield is positive than (repurchases/outstanding) is positive. company repurchased shares = accretion = good for shareholders = higher returns. If the repurcahse yield is negative then repurchaes are negative. A “negative repurchase” is an issuing of stock = dilution = bad for shareholder = lower returns. Its a tricky word play. I just think to add it if its good and subtract it if bad.
Repurchase yield = positive correlation with expected return. Change in outstanding stock = negative correlation with expected return.