An HQ Trust analyst compared two strategies with a view to value stocks. It becomes clear that the amount of the dividend does not determine the return.
• MSCI World Index and MSCI World High Dividend Yield Index
• High-quality key company figures and above-average dividends
• The amount of the dividend does not determine performance
HQ Trust capital market analyst Pascal Kielkopf compared the classic dividend strategy with the quality value strategy for the period from the beginning of 2008 to April 2023 and came to the conclusion in his analysis that although both strategies were fundamentally similar, one performed significantly better. The total return performance of two indices, the MSCI World Index with its broad range and the MSCI World High Dividend Yield Index, which only lists companies that offer investors an above-average dividend yield, are compared in the analysis. With the help of the combination of criteria – high-quality key company figures with high dividends – the probability of above-average dividend payouts in the future should be significantly increased.
According to institutional.money.com, Kielkopf states that a relatively clear picture emerges over the entire period: “Over the past 15 years, the classic dividend strategy was able to achieve a return of 7.9 percent per year, which, however, lags behind the MSCI World, which achieved an increase of 8.6 percent per year in the same period.” However, the HQ Trust analyst points out that the situation has reversed in the last two years. While dividend strategists were able to breathe a sigh of relief last year after a period of underperformance (+2.8 percent since the end of 2021), the MSCI World Index fell significantly back (-7.6 percent).
Strategy comparison: dividend level not decisive
For his analysis, Pascal Kielkopf divided the MCSI World shares into quadrants using common value and quality metrics and calculated the performance of those companies that were above average in both dimensions.
As far as the criteria are concerned, the two strategies examined, the classic dividend strategy and the quality value strategy, are clearly similar – both rely on the well-known criteria of high quality and low price. The quality-value strategy follows the principle of “Quality at a reasonable price”. The so-called “QARP” strategy is looking for high-quality companies with a low valuation. The amount of dividends distributed is not taken into account here.
In principle, a comparable development can be seen for both, writes Kielkopf. Both the dividend strategy and the quality value strategy showed a similarly positive price trend. “Nevertheless, the strategy, which did not take the dividend amount into account, performed significantly better with an excess return of 2.6 percent per year: the increase here would have been 10.5 percent annually. This also applies to the recovery phase since the end of 2021, in which Quality-Value was even able to increase by 5.4 percent,” says Kielkopf. This shows that the role of the distributed dividend is taking a back seat.
Ellen Reinold, editorial team at finanzen.net
