Book Double the Gains With These 5 Shareholder Yield Champs

Book 2x the Gains With These 5 'Shareholder Yield' Stocks

BALTIMORE (Stockpickr) -- The recent correction in the S&P 500 has done a number on investors' gains this year -- since the calendar flipped to January, the big index has pared its upside to just 5%. Put simply, if you want to get back to even, you need to look at factors that can help your portfolio play catch up.

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So today, we're taking a closer look at five stocks that could outperform the S&P 500 by two times in the year ahead. This handful of names focuses on something that has historically been an excellent predictor of stock outperformance.

What's the secret sauce I'm talking about? It's shareholder yield.

In a nutshell, shareholder yield is made up of anything that directly returns cash or equity to your portfolio. Yes, that includes obvious moves such as dividends, but it also includes share buybacks and paying down debt.

Any of those corporate actions can unlock significant value for shareholders, and the data backs it up. According to research by James O'Shaughnessy, over a 40-year period, large-cap stocks with the highest shareholder yield delivered average gains of 18.05%. That's almost double the returns that investing in the vanilla big index would have earned you.

With low interest rates and record levels of cash sitting on corporate balance sheets, management teams are looking for the most effective ways to return value to shareholders. It's not one size fits all, either -- the best mix varies from company to company. But by looking at the trifecta of dividends, buybacks and debt extinguishment, you can be sure that you won't miss out on any of the proceeds.

With that in mind, here's a look at five stocks that have provided superior shareholder yield in the last year.

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Capital One Financial

The last few years have been transformational for Capital One Financial (COF). Capital One has long been a credit card issuance powerhouse, courting U.S. consumers with its well known "What's in Your Wallet" campaign, but post-2008, COF has evolved more into a traditional regional bank, acquiring banking assets in search of low-cost deposits that it can use to lend money at credit card rates. That strategy has helped Capital One generate net profit margins approaching 20% on a consistent basis.

With record-low interest rates in play right now, Capital One is one financial stock that's less sensitive to those tamped-down spreads than most. Because its credit card lending portfolio is linked to rates, it earns more when it has to pay more. While that's not the case in newer businesses like car loans and mortgages, those secured lending products do help to reduce the overall risk in Capital One's overall loan book.

Capital One has spent considerable resources on advertising, and as a result, it's established its brand as one of the most well-known lenders in the country. The firm's unique card offerings should keep consumers opening new cards, especially as Americans shake off their post-recession aversion to using credit.

Financially speaking, COF is in good shape. Despite a growth-by-acquisition strategy for its deposit base, the firm's debt load is reasonable, and its underwriting standards have meant that charge-offs are below average compared to other card issuers. Capital One has had a major focus on shareholder returns in the last year, handing over more than $10.3 billion -- or 23.3% -- back to shareholders in the form of buybacks, dividends and debt reduction.

Look for outperformance from this banking company, especially as its earnings multiple flirts with the single digits in 2014.

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Hess

The last quarter hasn't been kind to the energy sector. Case in point: Integrated energy name Hess (HES). This $24 billion oil and gas company has seen its share price drop more than 18% in the trailing three months. But that commodity-fueled drop could just be a blip in Hess' longer-term price chart. Right now, Hess is one of the most attractive energy sector names from a shareholder yield standpoint, returning 12.4% to its investors over the past 12 months.

Hess may not be a supermajor, but this integrated oil and gas firm still has some attractive attributes. Consumers know Hess best for its gas station network (and collectible toy trucks), but the firm actually unloaded that earlier this year. The move to slice off downstream assets has been fairly well-timed, and it should certainly add to Hess' overall profitability in the quarters ahead. Now the firms' bread and butter is exploration and production: It owns commodity-producing wells on four continents.

The fact that nearly 70% of Hess' production is weighted toward oil is a big boost to the firm's financial health. While nat gas has become increasingly important in the last couple of years, it's being pressured in the near-term by the recent crude oil drop. That could come with lower-than-expected returns on investment for firms who have leveraged themselves to nat gas in 2015.

Hess is starting to look cheap at current levels. The firm trades for just 10 times trailing earnings as I write, and shares look primed for a bounce.

Hess returned $3.1 billion directly to investors in the last year.

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Activision Blizzard

Video game giant Activision Blizzard (ATVI) is having a solid year in 2014. Shares have been able to hold onto 8% gains since the calendar flipped to January, outperforming the S&P 500 by a whopping 300 basis points. While ATVI's customers are playing games, the firm's franchises are serious business; Activision Blizzard has a long track record of establishing multi-billion gaming franchises that create organic selling opportunities to a large existing base of gamers. The firm's cash cows include Call of Duty, World of Warcraft, and Diablo.

And in the last year, those titles have helped ATVI pay out an 11.35% shareholder yield.

The recurring payments model is one area where Activizion Blizzard has found huge success in breaking away from the rest of the gaming industry. With Wold of Warcraft, for instance, some 7.8 million subscribers pay a monthly fee to play the game online with other players in real time. That subscription component provides ATVI with recurring, high margin revenues. And they're sticky too. Because gamers have a massive sunk cost in building characters and attaining status, they're a lot less likely to switch to a competing franchise and restart the process.

The move to adapt that model to more conventional franchises, such as Call of Duty, hasn't come as quickly as many investors had hoped, but it still holds considerable promise. The next-generation consoles produced by Microsoft (MSFT) and Sony (SNE) should provide a pretty predictable revenue boost over the next several years, giving ATVI the opportunity to adapt existing titles to the new consoles at a much lower cost. Likewise, mobile gaming holds considerable growth opportunities, particularly in emerging markets, where high-powered PCs or consoles are less common.

Expect to hear a lot more about ATVI's mobile gaming execution in the next several quarters.

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Mondelez International

$5.16 billion -- that's how much Mondelez International (MDLZ) has shelled out for the direct benefit of shareholders in the past year. In all, that adds up to a 9.2% shareholder yield, paid out in the form of dividends, buybacks, and debt reductions. That's a significantly higher shareholder return than the firm's more conventional measures (such as dividend yield) indicate today.

Mondelez started life as Kraft's snack food business, slapping a new logo on a very established set of products. The firm's brands include names such as Oreo, Cadbury, Trident gum and Ritz crackers. The snack food business isn't particularly exciting, but it does make thick margins (more than 7% net profits last quarter, for instance) on a consistent basis. Unlike most food products, private label penetration is much lower in the branded snack food category, with consumers much less likely to buy off-brand Oreos than off-brand canned beans. That, coupled with dropping input costs in the last quarter, has helped to take some pressure off of MDLZ's margins.

International sales are a major upside catalyst at Mondelez. Today, the firm draws more than 40% of total sales from fast-growing emerging markets, and that existing distribution network in markets such as Asia and Latin America should help the firm grab onto growth trends that companies simply can't find here in the U.S.

As MDLZ works to get rid of more of its post-spinoff debt load, I'd expect this firm's shareholder yield to remain high for the next several years.

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Target

Target (TGT) has been a cautionary tale in 2014. The firm's data breach debacle may have caught consumers' attention and forced a shakeup in the executive suite, but it's intense competition and lackluster expansion into Canada that have really been haranguing this stock. That said, Target's showing some glimmers of a turnaround, and this looks like a good opportunity to get in at a lower cost basis.

Target is one of the biggest big-box retailers on the continent, with approximately 1,800 stores. Even though there's no shortage of discount retail competitors, Target's positioning as a "trendy" discount shopping experience has historically given it some attractive advantages over its "lowest cost at any cost" peers. That's particularly true in private label products (approximately 20% of the firm's revenue), where Target was the first big retailer to team up with exclusive designers and pair attractive products with attractive prices.

The introduction of grocery in recent years has hurt margins, but that was by design. Lower margins aren't a negative if they grow traffic and overall profits, and investors just need to adjust to that tradeoff. Margin dilution isn't bad if it's intentional.

Meanwhile, Target has been quietly improving its shareholder yield. The firm paid $3.27 billion to investors last quarter, with a more-than-$800 million debt reduction. That adds up to an 8.37% shareholder yield for the trailing 12 months at Target.

This retail name isn't completely out of the woods yet, but it looks well-positioned to outperform its much larger peers.

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To see these names in action, check out the Shareholder Yield Stocks portfolio on Stockpickr.

-- Written by Jonas Elmerraji in Baltimore.

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At the time of publication, author had no positions in stocks mentioned.

Jonas Elmerraji, CMT, is a senior market analyst at Agora Financial in Baltimore and a contributor to

TheStreet. Before that, he managed a portfolio of stocks for an investment advisory returned 15% in 2008. He has been featured in Forbes , Investor's Business Daily, and on CNBC.com. Jonas holds a degree in financial economics from UMBC and the Chartered Market Technician designation.

Follow Jonas on Twitter @JonasElmerraji