Picking Dividends With A Famous Professor Of Accounting

Seeking AlphaDividend StrategyPicking Dividends With A Famous Professor Of AccountingOct. 28, 2020 2:23 PM ET|| Includes: AMLP, DVY, REM, RSP, SCHD, SDY, SPY, SPYD, VYMby: Fred PiardFred Piard Quantitative Risk & ValueExclusive market risk indicator paired with data-driven model portfolios.SummaryThis is the third article of a series on picking dividend stocks safely.
I have discussed on a well-known ratio and a 52-year-old formula.
This post is about the Piotroski F-score and how to use it.
High yields often come with high volatility and capital decay. All high-dividend equity ETFs (VYM, SDY, SCHD, DVY, SPYD, etc.) have lagged the benchmark (SPY) in total return for years. In 2020, mortgage REITs and MLPs have been decimated. The iShares Mortgage Real Estate Capped ETF (REM) is still 46% below its 52-week high, and the ALPS Alerian MLP ETF (AMLP) is 52% below it. Not only mortgage REITs and MLPs as a whole have lost capital, but a lot of companies in these industries have or will cut their dividends. It makes me really sad to think of retirees who have invested heavily in them for incomes, sometimes following subjective or outdated analysis. The danger of confirmation bias is that we always find someone who wrote what we wish to read.
This article suggests a solution to pick dividend stocks in a safer way.
High yields are risky
In a recent article, I gave insight about how to choose dividend stocks. One of my points was: beware of yields above 6%. They come with a high risk of capital decay and volatility. However, stocks with a dividend yield between 2% and 6% outperform in total return.
The next table shows the performance of a S&P 500 subset holding stocks paying dividends between 2% and 6%. The subset is reconstituted and rebalanced in equal weight every quarter since 1999.
Total Return
CAGR
Drawdown
Sharpe Ratio
Volatility
S&P 500 2% to 6% yield subset
606.46%
9.40%
-56.65%
0.54
15.87%
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