In recent weeks I’ve been experimenting with a year’s worth of market data to figure out which factors combined have produced the best total returns in dividend investing strategies. It’s fair to say that 12 months is a very limited test period, but what I have wanted to do is validate some ideas. With evidence of recent success, I’ll at least have a more confident starting point for putting theory into practice for the next few years.
The investigation began by tracking the shares that have both a high yield and a high StockRank. The StockRanks are Stockopedia’s system of scoring and ranking companies based on their Quality, Value and Momentum. Over the past two years, baskets of high StockRank shares have delivered some stunning capital returns, but it wasn’t clear whether these stocks would suit a dividend strategy. As it turned out a 25-strong portfolio ended up with one-year capital growth of 11% and an overall yield return of about 5%. A 16% total return in from this strategy was very promising.
Could we improve it? Well we wondered whether the concept of ‘dividend achievers’ could boost this strategy further. Dividend achievers are stocks that have consistently grown their dividend payouts over a period of 10 years. In the US, the official Dividend Achievers index demands a continuous, uninterrupted growth streak of 10 years, but across the smaller UK universe of stocks this is harder to find. So we settled on screening for seven years of dividend growth out of the last 10 - with no dividend cuts allowed.
Here are the rules that we tested:
- A market cap greater than £100m.
- A StockRank greater than 85.
- A yield above 3%.
- A record of paying a dividend for the last 10 years.
- A dividend per share that is forecast to grow.
- No dividend decreases in the past 10 years.
- At least 7 dividend increases in the past 10 years.
As I mentioned last week, a year ago there were 33 companies that passed these rules. The top 20 of them sorted by the highest StockRank generated a capital gain of 16.9% and a yield of 3.1%. Clearly this 20% total return is significantly better than the 16% we achieved using high yield and high StockRank alone… but it did come at the expense of a lower dividend yield.
Hang on… a…
