https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2798809
Great financial paper. What do you think?
Having only read the abstract, I’m not sure how this is new info. These are pretty self-evident conclusions if you’re at all familiar with dividend investing.
Key shit bolded:
We evaluate the influence of dividends on the investment performance of the most prominent equity styles. Our findings support the following conclusions. In general, focusing on dividendpaying stocks significantly reduces risk, independent of investment style. This is true for value and growth portfolios, as well as for small-, mid-, and large-cap portfolios. This risk reduction is also largely present when combining value/growth and size styles. Moreover, the high dividend-yield portfolios, which consistently offer the least risk, provide a dividend yield that averages 4.3% annually.
Our results have implications for specific investment styles. In addition to reducing risk, growth investors could have also experienced higher returns by focusing on dividend-paying stocks. It is particularly noteworthy that dividend-paying growth stocks have higher returns than non-dividend payers because it is often presumed that these firms have high-return, internal investment opportunities such that dividend payments detract from investor return. Our findings are consistent with Arnott and Asness (2003) where low dividend payouts did not imply higher future earnings growth. For value investors, an investment in dividend-paying stocks reduced risk without sacrificing return.
Examining style investing by market cap, small- and mid-cap dividend-payers had significantly less risk and higher return than the same non-dividend-paying stocks, whereas the return differences were not nearly as prominent for large-cap firms. It is surprising that small-caps had higher returns when a dividend was paid, given that these firms are typically thought to be better off reinvesting their earnings. The performance of non-dividend-paying, small- and midcap, growth portfolios is abysmal. These portfolios report by far the lowest returns, but worse yet, have risk that exceeds that of all dividend-paying portfolios. The plot of Sharpe ratios demonstrates a generally consistent risk-adjusted return benefit associated with high-dividend mid-cap, growth stocks. In particular, with the exception of the late 1990s, which witnessed a tech bubble, the performance superiority of the high-dividend portfolio is shown to be remarkably consistent across time. Attribution analysis confirms that choosing high dividend-yield stocks results in positive returns that are pervasive across sectors and independent from the sector chosen. Overall, our results have important implications for investment practitioners. We find that the choice of dividend level is crucial in determining the success of an investor’s chosen investment style. For example, growth investors focused on average- or below-average-sized firmsquadruple returns by targeting high-dividend-yield stocks, rather than no-dividend stocks. Furthermore, this remarkable increase in returns is accompanied by a substantial risk reduction. The dramatic impact of dividend exposure also shows up with respect to investors focused on exploiting the value premium. In particular, when applied to no-dividend stocks, a long/short value-growth strategy targeting below-average-size firms generates a return of approximately 13% on an annual basis. Finally, our findings suggest that the Dogs of the Dow, a popular investment strategy, would be more successful if applied to a group of stocks that included firms of average and below average size.
split your money evenly between SPHD and SCHD