Over the past few months, I have written extensively about the “new normal” in income investing.

You see, as one of StreetAuthority’s leading income investing experts, it’s my obligation to let you know when the rules have changed.

#-ad_banner-#​Nonetheless, I consistently get emails from readers, asking me where all of the high yielders have gone.

“You are getting away from income investor basics. I am not interested in “total [yield]” or stocks with less than 7%-8% dividends.”

— George W., North Carolina

I want to devote today’s issue to address George’s email, because understanding the reality about income investing in today’s market can mean the difference between market-beating returns and financial ruin.

I understand that many of you, like George, want to see me recommend 10%-plus yielders each month — to which I can only respond, so do I. Unfortunately, high-quality stocks with yields even half this high are extremely rare.

That’s because, right now, aside from historically low interest rates, American companies are undergoing a transformative shift away from dividends in favor of share repurchases.

Don’t get me wrong — dividend and interest income will always be the heart and soul of both of my premium newsletters, High-Yield Investing and Total Yield. I search every corner of the market for securities that will put maximum cash in readers’ pockets.

That being said, there just aren’t as many dividend yields above 4% as there used to be.

Take a look at the breakdown of yields among the S&P 500… And keep in mind that these are the strongest and most profitable businesses on the planet.

As you can see, dividends of 7% to 8% don’t exactly grow on trees. In fact, there are only three in the entire S&P 500. That’s it, three. The other 497 fall short.

Right now, the typical stock in the S&P 500 carries an average yield of 1.96%. Even if you were to search through all 15,534 stocks and American Depository Receipts (ADRs) traded on U.S. exchanges, the average yield shrinks to a paltry 1.22%.

There was once a time when 4% dividend yields were more common. That era has ended and been replaced with a new norm closer to 2%. It’s no coincidence that the slow decay in yields syncs up with the ongoing rise in stock buybacks.

And the trend is accelerating — buyback expenditures have risen for nine straight quarters and are growing at a faster pace than dividends.

For example, out of 500 stocks in the S&P 500 index, there are now more S&P companies repurchasing shares (431) than paying dividends (417). And the amount spent on buybacks over the past year ($445 billion) surpasses what was spent on dividends ($339 billion) by more than $100 billion.

That means that for every $1 of surplus capital that used to be available exclusively for dividends, stockholders are now getting about 55 cents in buybacks and 45 cents in dividends, so income accounts for a smaller percentage of the total return picture.

But here’s the deal…

That’s not a bad thing. While they aren’t necessarily as instantly gratifying as a cash dividend, stock repurchases often hold more value for shareholders.

You see, when a company buys back its own stock, it effectively reduces the pool of shares available. And the reduced supply of shares on the market instantly makes the shares still out there that much more valuable.

Think of it in terms of your share of a company’s earnings. If you own 10% of a company that earned $1,000, your share of earnings would be $100. But if that company bought back half of its shares, your portion of the earnings would double to $200.

Buybacks are an easier way for companies to give you a much larger share of a company’s wealth without having to distribute checks or pay taxes on dividends. (And as I pointed out in a previous article, it’s helpful to look at buybacks as a type of tax-free payment given to shareholders.)

Going back to George’s point, let’s be perfectly clear. I am NOT saying that dividend yields of 6% to 8% or higher don’t exist. But they are rare, and are often symptomatic of a troubled company.

For instance, American Capital Agency Corporation (Nasdaq: AGNC) is a company that borrows capital at low interest rates, and invests in mortgage-backed securites with interest payments that are guaranteed by government-sponsored enterprises like Fannie Mae or Freddie Mac. The interest payments the company receives are generally much larger than the rates at which AGNC borrows, creating a “spread,” which allows the company to pay large, generous dividends.

On the surface, that might sound great. And AGNC’s dividend yield of 15% back in May 2013 probably seemed enticing to a lot of yield-hungry investors. But it was little comfort to investors who sat throught several dividend cuts and watched AGNC plunge from $28 to $18 per share in a little more than three months, losing 35% of its value.

Looking back, it was easy to see that American Capital had cracks in the foundation. The 15% yield was the first red flag among many more. I wouldn’t be doing my readers any favors by tempting them with stocks like this.

So to readers like George, let me say that while I am constantly looking for stocks with high yields, I am more interested in preserving and protecting your hard-earned nest egg than showing you a flashy 8% yielder that is all sizzle and no substance.

The goal is to find some middle ground and avoid the alluring snare of high-yield for high-yield’s sake. I’d rather steer you toward companies with a lower (but still well above average) dividend payout if the distributions are sustainable and growing, and the underlying business fundamentals are sound.

Look for the vital signs of a healthy business. Find a company with a solid dividend yield (keeping in mind the market’s new norms) and a record of repurchasing stock, and you will be well on your way to identifying a company that will beat the market.

P.S. — Dividend payments and stock repurchases are two of the three cruxes of the Total Yield formula, which I use to find stable, profitable stocks for my premium newsletter, Total Yield. No strategy can protect investors from all market turmoil, but this one comes close. After months of research, I found that the highest Total Yielders helped shelter investors from even the worst downturns. Not only has the strategy returned an average of 15% per year since 1982, but it’s outperformed the S&P during the “dot-com” bubble and the 2008 financial collapse, too. To learn more about the Total Yield investing strategy, click here.