How To Design A Bias-Free Dividend Strategy (Part 2)

This article is a sequel (previous episode here). It presents a dividend strategy on S&P 500 companies with no survivor bias and no look-ahead bias. New Strategy Description: I start in the S&P 500 universe. Only companies whose average yield for 5 trailing years is above 5% are taken into account. Stocks whose short interest is above 5% are excluded. Finally, the 10 stocks with the highest current yield are selected. Rules of Simulation:- The portfolio is rebalanced every quarter from 1/1/2002, to 4/1/2012.- A 0.2% slippage is applied for every trade.- Capital is equally allocated between the stocks.- The maximum size of a position is limited to 1/10 of the total amount. Results: - Average quarterly gain (dividends included): 3.2% - Average gain/average loss (quarterly): 1.53 - Probability of gain (quarterly): 70% - Drawdown: 19.2% The annualized return is about 13% (vs 15% in the... Read more