This approach would have worked very very well going back to 2006.
However, I have done work that shows that this out performance is perhaps not as robust as one would like. There have been some stocks (think QCOR or PCU) that did very very well. Either way, I am now using the approach live. One can wait forever for a clear signal a method works.
That being said, I thought it might be interesting to see how dividend stocks within MFI are doing in general. So this is everything with a yield of 2.6^ or greater and n market cap flag. I have also sowed this universe has done very well. $100,000 spread over 12 tranches in 2006 would now be worth $392,000 versus about $191,000 in the R3K.
Here is a table showing rolling 12 tranche averages of those dividend stocks:
| Date | Dividend | R3K | Difference |
| 39.4% | 23.3% | 16.2% | |
| 42.0% | 24.4% | 17.6% | |
| 43.2% | 24.9% | 18.3% | |
| 43.1% | 25.3% | 17.8% | |
| 41.5% | 24.6% | 16.9% | |
| 40.6% | 24.6% | 16.0% | |
| 38.7% | 24.0% | 14.7% | |
| 37.4% | 24.4% | 13.0% | |
| 35.4% | 24.1% | 11.3% | |
| 32.2% | 22.9% | 9.3% | |
| 29.4% | 21.6% | 7.9% | |
| 26.4% | 19.8% | 6.6% | |
| 24.9% | 19.0% | 5.9% | |
| 22.8% | 18.0% | 4.8% | |
| 21.8% | 17.3% | 4.6% | |
| 20.8% | 16.9% | 3.9% | |
| 20.0% | 16.2% | 3.8% | |
| 18.0% | 15.0% | 3.1% | |
| 16.7% | 14.0% | 2.6% | |
| 15.5% | 12.5% | 3.0% | |
| 15.6% | 11.7% | 3.9% | |
| 15.1% | 10.9% | 4.2% | |
| 13.9% | 9.8% | 4.0% | |
| 12.8% | 9.1% | 3.7% | |
| 11.7% | 8.5% | 3.1% | |
| 9.5% | 7.4% | 2.1% | |
| 7.8% | 6.5% | 1.3% | |
| 5.7% | 5.2% | 0.5% | |
| 4.7% | 4.2% | 0.5% |
So the good news is that they are all still winning (recall these are rolling 12 months, so 5/29/15 has dividend stocks from my tracking portfolios between June 27th, 2014 and May 29th, 2015). But if you focus on the difference column, you can see that the margin of winning is tightening.
What does this mean? I have hypothesized that our time period is biased. Past the GFC, so mid 2009 and forward we have been at historical low bond rates. That has the impact of making dividend paying stocks (and arguably higher quality ones) more attractive. And perhaps money has flowed out of the bond market and into the stock market favoring stocks yielding more than treasuries.
If this is the case, then we might be due for a reversal as interest rates are going to start going up (perhaps as soon as September). Now one test would be whether dividend stocks did better before the GFC - say 2006 and 2007.
I am pleased to say they did (see table below). Though there may have been other factors impacting this (at some point Bush lowered tax rate on dividends making them relatively more attractive than bonds):
| Date | Dividend | R3K | Difference |
| 29.2% | 11.9% | 17.3% | |
| 28.1% | 11.0% | 17.1% | |
| 27.7% | 9.5% | 18.2% | |
| 25.1% | 7.6% | 17.5% | |
| 24.3% | 5.1% | 19.2% | |
| 19.6% | 2.1% | 17.5% | |
| 14.5% | -0.3% | 14.7% | |
| 10.6% | -2.1% | 12.7% | |
| 6.2% | -4.8% | 11.1% | |
| -0.3% | -8.7% | 8.4% | |
| -6.2% | -12.3% | 6.0% | |
| -10.5% | -15.9% | 5.4% | |
| -12.2% | -18.3% | 6.1% | |
| -17.7% | -21.7% | 4.0% | |
| -23.4% | -24.3% | 1.0% | |
| -25.5% | -26.5% | 1.0% | |
| -29.1% | -28.8% | -0.4% | |
| -26.7% | -29.6% | 2.9% | |
| -25.2% | -30.4% | 5.2% | |
| -24.9% | -31.1% | 6.2% | |
| -24.1% | -30.4% | 6.4% | |
| -19.2% | -26.4% | 7.2% | |
| -10.8% | -20.9% | 10.1% | |
| -3.3% | -14.9% | 11.6% | |
| 2.9% | -8.9% | 11.8% | |
| 17.1% | -0.8% | 17.9% | |
| 31.7% | 6.3% | 25.4% | |
| 39.4% | 12.7% | 26.7% | |
| 45.2% | 17.4% | 27.8% |
Oh well. Bears watching. We will see what we see.
Thoughts?
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1 comment:
As you say, it bears watching. Certain types of stocks and sectors go in and out of fashion over time. I think the higher dividends would probably help minimize losses when the stock market goes down. So even if the return of the high yield portfolio 'only' matches the market, you might still have a solid investment that has lower volatility than the overall market.
j
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