Journal Of Indexes: Dividends Vs. Value

March 13, 2014

 

Figures 6 and 7 show the frequency of the respective range of dividend yields. While the results so far are hardly surprising, the more interesting analysis is that of the value portfolio. Despite dividend yield not being part of the selection process at all, the dividend yield of the resulting portfolio rises to 5.02 percent, almost 1 full percentage point above that of the base index in absolute terms.

Dividend Indexes And Value Indexes

Dividend Indexes And Value Indexes

However, the distribution of the yields is more broadly spread, as shown in Figure 9: Whereas the select dividend index consequently selects the majority of its components with stable but high yields in the 4-6 percent bucket, the value index has significant portions of lower-paying stocks in the portfolio, with over one-third of the portfolio yielding only 4 percent or less, which represents the average of the base portfolio. Indeed, the high average is influenced more strongly by the outliers in the 10-percent-or-larger bucket, which stem from very small companies with distorted yield values that are filtered out through the tougher market-cap screens in the dividend basket. From a stock selection perspective, even though a value approach will, on average, produce a higher dividend yield, that is by no means a guarantee or assurance of a strong dividend yield, and investors looking for this characteristic are clearly better off using a selection theme based on dividend yields directly, which, given the simplicity of this approach, is quite feasible.

Dividend Indexes And Value Indexes

Dividend Indexes And Value Indexes

 

 

Find your next ETF

Reset All