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April 3rd, 2013 | Journal of Financial Planning

Dividend Investing: A Value Tilt in Disguise?

by Gregg S. Fisher, CFA, CFP®

Executive Summary from the Journal of Financial Planning

  • In today’s near-zero interest rate environment, dividend investing is back in fashion. The popularity of stocks that offer investors generous dividend distributions has only been heightened by their recent performance. From January 1, 2011, to September 30, 2012, the FTSE High Dividend Yield Index of U.S. stocks returned 26 percent compared to just 19 percent for the S&P 500 Index.
  • In seeking to better understand the outperformance of high-dividend-yielding stocks relative to the broader equity market, this paper dissects their return patterns and examines returns over a period of more than 30 years through the lens of risk factors.
  • Results suggest that it was actually the value factor that is inherent in most high-dividend-yielding stocks that was responsible for the outperformance of these stocks over the period studied.
  • The yield factor associated with high-dividend-yielding stocks actually detracted from performance.
  • A takeaway for advisers and investors is that if outperforming the broader market on a medium- to long-term basis is a main objective, applying a value tilt to a portfolio is generally a better strategy than overweighting high-dividend-yielding stocks.

Gregg S. Fisher, CFA, CFP®, is chief investment officer of Gerstein Fisher, an independent investment management and advisory firm founded in 1993. Gerstein Fisher manages investments on behalf of individuals, families, and institutions using a scientific, quantitative research-based approach that is grounded in economic theory and common sense.

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