logo
  Join        Login             Stock Quote

Dividend Strategies Underperform In 2012

 January 02, 2013 01:58 PM


One of the hot investment topics of 2012 has centered around dividend paying stocks. With the Federal Reserve pursuing a near zero interest rate policy, the yield on treasury bonds as well as cash have been pegged at a very low level. For investors relying on income, some investment strategists have extolled the virtues of dividend paying stocks with many of the dividend strategies generating yields higher than treasury bonds and cash. For example, the iShares Dow Jones Select Dividend Index (DVY) yields more than 3% while the 10-year treasury yields little more than 1.5%. Now bond risk is a far cry from equity risk; however, the point of this commentary is one might expect dividend paying stocks to be top performers given all the attention they have received this year. Top performers they haven't been though.As the below chart comparing the Powershares Dividend Achievers Portfolio (PFM) to the S&P 500 Index shows, the PFM ETF has underperformed the S&P index over the last 12-months (top chart). However, over a 2-year period (bottom chart), the PFM dividend achievers portfolio has generated a return better than the S&P 500 Index.

[Related -Health Care SPDR (ETF)(NYSEARCA:XLV): The Only ETF You Need To Own – For September]

For investors then, keep a longer term focus in mind. Outperformance can be achieved while at the same time assuming a lower level of risk, that is, a lower standard deviation. The end result is an investor is likely to generate a higher risk adjusted return. Some Modern Portfolio Theory statistic for the Dividend Achievers Index is outlined below. Lastly, the Dividend Achievers strategy has outperformed the S&P 500 Index in each down market going back to 2011.

[Related -CONN'S, Inc. (CONN) Q2 Earnings Preview: The BIG Move Quarter]

Importantly, for investors that rely on regular distributions from their assets, minimizing downside returns is important. Certainly there are other investment allocation strategies that can be employed that will minimize an investor's downside returns, i.e., holding cash, alternative hedged investments, etc., however, for the core equity portion of ones portfolio, employing a dividend focused strategy has the potential to reduce the overall portfolio's potential downside volatility.

iOnTheMarket Premium
Advertisement

Advertisement


Post Comment -- Login is required to post message
Name:  
Alert for new comments:
Your email:
Your Website:
Title:
Comments:
 

rss feed

Latest Stories

article imageLevel 3 Communications, Inc. (LVLT): A Good Time To Buy Says Macquarie

On a day Wall Street is struggling to advance, Level 3 Communications, Inc. (NYSE:LVLT) is having no such read on...

article imageAbercrombie & Fitch Co. (ANF) Q2 Earnings Preview: The Unkind Quarter

Abercrombie & Fitch Co. (NYSE:ANF) will be holding its second quarter 2014 earnings conference call for all read on...

article imageWorkday Inc. (WDAY) Q2 Earnings Preview: Built In Surprise

Workday Inc. (NYSE:WDAY) plans to announce its fiscal 2015 second quarter results after market close on read on...

article imageArcelorMittal SA (ADR)(MT): Steel Stocks about to Get Red Hot

For the second consecutive day, a major broker upgraded a steel company by advancing their recommendation read on...

Advertisement
Popular Articles

Advertisement
Daily Sector Scan
Partner Center



Fundamental data is provided by Zacks Investment Research, and Commentary, news and Press Releases provided by YellowBrix and Quotemedia.
All information provided "as is" for informational purposes only, not intended for trading purposes or advice. iStockAnalyst.com is not an investment adviser and does not provide, endorse or review any information or data contained herein.
The blog articles are opinions by respective blogger. By using this site you are agreeing to terms and conditions posted on respective bloggers' website.
The postings/comments on the site may or may not be from reliable sources. Neither iStockAnalyst nor any of its independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. You are solely responsible for the investment decisions made by you and the consequences resulting therefrom. By accessing the iStockAnalyst.com site, you agree not to redistribute the information found therein.
The sector scan is based on 15-30 minutes delayed data. The Pattern scan is based on EOD data.