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The Science of Investing – 2

Posted by fairval on June 24, 2010

Are institutional broking analysts not used to tracking high yield stocks? Or so it seems.

Look how they are tying themselves in knots here..

Assuming investors prefer high-yield stocks because of their lower uncertainties, we believe factors that reflect the reliability of dividends can be complementary to a high dividend yield strategy. We conduct a two-dimensional grouping simulation to identify factors that have significant effects on high-yield stocks. By creating a composite score based on select reliability factors, we propose a high dividend yield strategy that has proved to generate consistent return over the past 10 years based on our back testing. Even during times where the dividend yield factor is not effective, consideration of the extra reliability screening in a high dividend yield strategy delivers better performance. The composite score is best utilised as a complementary factor to a high dividend yield strategy for stock selection, but not as a standalone factor to generate return.


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