Lets count dividend yield

Wednesday, Apr 03 2019 by
7

I’m interested in adding a portfolio of value shares to my usual momentum/breakout approach, as value based strategy returns correlate inversely with my usual price momentum (value shares normally get their definition after price falls and momentum is backwards looking). Any screen would also serve, in the event of a market crash, as a quick shortlist of what to put in my basket.

I thought I'd describe my rational/thoughts and hopefully get feedback/tips from those who might be already pursuing a similar strategy.

Dividend yield is not included as a measure of return for any of the guru strategies or Stockranks. However, many studies state the importance of return from yield https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3051173. Stockopedia acknowledges the factor and dividend yield is part of the value rank.

As a consequence of not counting yield in guru returns, there are numerous value, income and bargain based guru strategies, whose returns are under represented to a greater or lesser extent as they tend to have a higher yield. When looking at these it is instructive to look at the current qualifiers average yield (from the value tab) and add that on to the annualized return (the easiest way that I’ve found is to copy and paste into a spreadsheet and average the column). Take this (cherry picked) strategy https://www.stockopedia.com/screens/winning-growth-income-105/#display ; For the UK an annualized return of almost 17%, before dividends, plus a (current) yield of 6.5%. That beats many growth screens.

Stephen Bland has a methodical strategy based around high yield, sector diversification, strategic ignorance and once set up, as much indolence as possible. If I’ve misrepresented this, I apologise now and I encourage people interested to read his recent thread https://www.stockopedia.com/content/how-i-build-an-hyp-459388/ . Although it appeals to me from a yield perspective, I’m not psychologically quite ready for it, as it ignores capital changes. Another 20 years and I'll sign up.

There are other easier options to easily diversify away risks, while still seeking dividends, including traditional funds or ETFs. They can be purely yield based (ETFs like iShares UK Dividend Plus https://www.ishares.com/uk/individual/en/products/251807/ishares-uk-dividend-ucits-etf ) or take a more cautious approach (ETFs such as SSGA S&P UK Dividend Aristocrats GBP https://uk.spdrs.com/en/professional/etf/spdr-sp-uk-dividend-aristocrats-ucits-etf-SPYG-GY). These were picked after a quick google, so nothing notable about them. They both distribute income and don’t seem to be going anywhere (their total return includes distributions, but also…

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As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. The author may own shares in any companies discussed, all opinions are his/her own & are general/impersonal. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested.


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3 Posts on this Thread show/hide all

Nick Ray 3rd Apr 1 of 3
2

Personally, I find high yield is not a good screening metric because high yield can also be associated with poor performance (e.g. market expects div to be cut). But DPS Gwth % and its various friends are associated with good performance as well as pointing towards a good ongoing yield.

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Howard Adams 3rd Apr 2 of 3
1

Hi HumourMe

As you mention concerns about protecting capital, why not also test for the historic returns from share price appreciation using this test 'Price 5y CAGR %' at say >X.

X being whatever you feel safest with.

For my growth screens where I use this I test for Price 5y CAGR % > 8.18. But to just use it as a safety test, then you could drop it to >0, or something in between.

Just a suggestion.

Also, I note eight of the screen selections are Housebuilders as they are all meeting your criteria which I often encounter in some my own screenings.

Regards
Howard

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HumourMe 4th Apr 3 of 3
1

Useful observations, thanks. I've added a future looking dividend requirement.

Also, I note eight of the screen selections are Housebuilders as they are all meeting your criteria which I often encounter in some my own screenings.

In this case I'll equal weight by sector and probably pick the highest 2-3 by Stockrank.

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