How To Pick Low-Risk Dividend Stocks
Published Nov 12, 2020 on Seeking Alpha

Seeking AlphaDividend StrategyHow To Pick Low-Risk Dividend StocksNov. 12, 2020 1:31 AM 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.SummaryThe Altman Z-score is a bankruptcy risk metric.
The Piotroski F-score is a quality metric.
How to use them to cut the risk of picking bad stocks.
Dividend stocks beat the market in the long run
Stocks paying dividends have outperformed in aggregate for decades. The next table shows statistics on S&P 500 stocks paying a dividend between January 2000 and November 2020, compared with the equal-weighted benchmark.
Jan 2000- Nov 2020, reset quarterly
Tot.Return
Ann.Return
Max Drawdown
Sharpe
Volatility
S&P 500 stocks, equal weight
440.34%
8.43%
-59.90%
0.47
17.46%
S&P 500 dividend stocks, equal weight
559.16%
9.47%
-59.18%
0.54
16.55%

The dividend stock subset has a higher total return and a lower volatility.
However, chasing high yields is not the right strategy. High-dividend ETFs (VYM, SDY, SCHD, DVY, SPYD) have lagged the S&P 500 (SPY) for years, even reinvesting dividends. This year has been especially bad for high dividend industries: the iShares Mortgage Real Estate Capped ETF (REM) and the ALPS Alerian MLP ETF (AMLP) are, respectively, 40% and 47% below their 52-week high.
Filtering dividend stocks with simple metrics can drastically improve the quality of your portfolio. The next paragraph shows a way to use the Altman Z-score and the Piotroski F-score, which are available in many screeners.
Filtering dividend stocks
The Altman Z-score aims at quantifying the risk of bankruptcy. Companies with a score below 1.81 are considered in distress zone.
The Piotroski F-score is the sum of nine binary indicators in profitability, leverage and operating efficiency. It is an... Read more