Thursday, July 31, 2014

MFI Tracking Analysis: Yield by Market Cap

Per JC's comments, I ran a quick pivot table that took my MFI tracking data from 2010 forward (the point I started capturing actual dividend yields as opposed to a simple flag (greater than 2.6% and less than 2.6%).

It did show that larger cap stocks even between 1.8% and 2.6% yields have done quite well (larger meaning about 900M+).   But there is a direct positive correlation between yield band and return for larger cap stocks. It was quite interesting.

Yield Rank Largest Smallest Total
Under 1.8% 8.8% 8.3% 8.5%
1.8% to 2.6% 23.0% 10.0% 19.7%
2.6% to 3.5% 30.8% 10.1% 26.4%
3.5% to 4.5% 31.3% 24.0% 29.1%
4.5% and higher 38.3% 4.9% 18.3%
Grand Total 19.0% 8.2% 13.2%

Here is a second table showing how many data points at each tabular position:

Yield Rank Largest Smallest Total
Under 1.8%          660          1,025      1,685
1.8% to 2.6%          109              37         146
2.6% to 3.5%          163              44         207
3.5% to 4.5%            91              40         131
4.5% and higher          171            255         426
Grand Total        1,194          1,401      2,595
Food for thought I'd say!

3 comments:

John Carney said...

Dividend yields of 1.8%-2.6% only occur 20% of the time. When put together and weighted with 1.8%-4.5%+ the return is 31.7% vs IWV at 15.3%.
As Marsh likes to say "Very Interesting".
Also the 1.8% to 2.6% beats IWV by +7.7% points. Most money managers would die for that performance alone.
If you thrown out the 1.8%-2.6% the return goes up to 33.9%.
Thus you would only used them as second choices. You could limit these picks to 4 -6 per year when higher yields were not available.
Looks like we have a very mechanical winning system.
Only going forward will we know for sure!
Marsh I think you have a wrap! Thanks for this special work and all you do.

Corpraider said...

Seems like the yield tilt might be adding some additional quality loading. You cut out all the Chinese frauds, most of the home healthcare stocks and for profit education stocks, no? I would be interested to run the MF with a factor for low accruals or high cash earnings which I've seen used as a proxy for quality (really earnings quality) lately. It seems you basically have to try to eliminate the junk that is showing up as having a high earnings yield and ROIC but isn't really supported by cash earnings. Maybe the dividend, (and/or the market cap) is doing that for you?

Marsh_Gerda said...

John and Corpraider - i am not sure what to make of the data. One could certainly make the argument that large companies paying dividends is a proxy for stability. One could also argue that a large chunk of the time period we are looking at had very low treasu ry rates and that might make large cap dividend stocks a more attractive option. Will it continue? Wish I knew. My August tranche will likely lean this way.