Facebook Twitter Instagram
    Trending
    • Are central bankers asking the right questions about “inflation?”
    • The Future of the Central Bank
    • Memo to Fed: Stop worrying about “inflation” beyond monetary control
    • Memo to Fed: Don’t mess with Mother Nature’s interest rates
    • Japan: Time to shift gears to climb to the next level of growth
    • Japan: Households shine in 2Q2018 – watch three threats to exports and households
    • Newest inflation report – 3 secrets revealed
    • No, productivity is not widely weak. Companies are dynamic.
    Fed Dashboard
    • Home
    • About Us
      • Our Purpose
      • Editorial Board
      • Thank you / Credit
      • Contact our writers
    • Economic Analysis
      • Employment
      • Wages & Salaries
      • Productivity
      • GDP
      • Production
      • Money & Prices
      • Exponential Tech
      • Imports & Exports
      • Consumer Credit
      • Business Credit
      • Housing
      • Oil
      • Europe
      • Asia
    • Market Fundamentals
    • Live Dashboards
      • Employment
      • Wages and Salaries
      • GDP, Production & Sales
      • Money & Prices
      • Housing
      • Consumers
      • Business Credit
      • Trade
    Fed Dashboard
    You are at:Home»Market Fundamentals»Three pointers to safer dividends

    Three pointers to safer dividends

    0
    By Brian Barnier on November 10, 2015 Market Fundamentals

    People holding dividend-rich portfolios got a nasty shock when prices turned town. With prices back up, the question is whether there is a better way to pick higher-dividend stocks. Yes, three measures help filter for stability.

     

    In the hunt for yield, many savers switched from bonds to higher-dividend stocks. In a Fed-fueled equity market, there was little downside fear, and the usual trade-off between growth and stability was often forgotten. Now in monetary policy transition, more people are seeking dividends with price stability.

    Is there a better way to pick than screen by dividend yield?

    Yes, with the usual caveat that “better” is a balance in the eye of the beholder. In particular, when evaluating “risk,” a question is whether that “risk” is measured in volatility (standard deviation of returns) or liquidity in the sense that funds are available when needed with low downside price risk.

    Depending on how you evaluate risk, you can trade-off three measures.

    The first two are 5 year historical dividend growth and 52 week percentage price change relative to the S&P 500. These are easily viewed in the Screener of Zacks Research System (ZRS). The blue dots are S&P 500 member companies.

    20151106z5yrgthrelpchgIn this view, “goodness” is to the upper right — both stronger five year track record of dividend growth and outperforming S&P 500. Five years helps provide a view of consistency. Of course:

    • This is dividend growth, so compare to original screen on dividend yield.
    • Both growth numbers are averages over time, so check the actual patterns.

    To check dividend stability, ZRS provides our third measure — the R-Squared of the five year historical dividend growth. A higher R-Squared means tighter the fit to trend line growth. This indicates a more stable growth rate (not that the dividend itself is unchanged).

    20151106z5yrgthrsqThe blue dot concentration shows most companies are signaling consistent growth rate (over .9 R-Squared). “Goodness” is again to the upper right with consistently higher growth dividends.

    Your yield

    Investors using these measures are taking the next step after screening by yield. When rebalancing your portfolio, track your yield. Any software tool that doesn’t know your current holdings will calculate dividend yield based on current, not original purchase price. In a rising market, a screener list of yields based on current price basis will understate yield on what you purchased at a lower price – your yield matters.

    How much price exposure must be suffered in pursuit of dividends?

    Zacks Earnings Certain Proxy (ECP) illuminates an answer. Zacks ECP focuses on highly stable companies that produce consistent earnings; it excludes interest-rate sensitive and hyper-growth companies. Compared to Zacks S&P 500 equal weighted composite proxy, Zacks ECP companies gained more lift from the Federal Reserve (red Adjusted Monetary Base line) nearly doubling price returns and more than doubling dividend per share growth.

    20151106ziczecpeNote: All lines are percentage growth for comparability.

    Quarter to quarter, one proxy may outperform the other. Zacks ECP companies were cumulatively behind during the dot com bubble. Today in the lead, Zacks ECP cumulative performance seems to have come more from avoiding dips. The point is that a dividend emphasis doesn’t have to sacrifice price.

    More, as is our frequent refrain – averages hide answers. So take the extra steps to determine what’s right for you.

     

    Data Geek Note: For more on the St. Louis Federal Reserve Bank Adjusted Monetary Base, see https://research.stlouisfed.org/publications/review/03/09/Anderson.pdf

    Share. Facebook Twitter Pinterest LinkedIn Tumblr Email
    Previous ArticleWho are the 5 captains of corporate cash?
    Next Article To find better measures of value, look beyond broadsheet relics

    Related Posts

    NEW READERS – START HERE for Top Charts

    How to get over 90% of your returns with less stress – start with macro

    P/E ratios are blind to two big price drivers

    Comments are closed.

    Recent Posts
    • Are central bankers asking the right questions about “inflation?”
    • The Future of the Central Bank
    • Memo to Fed: Stop worrying about “inflation” beyond monetary control
    • Memo to Fed: Don’t mess with Mother Nature’s interest rates
    • Japan: Time to shift gears to climb to the next level of growth
    Categories
    • Asia
    • Business Credit
    • Consumer Credit
    • Employment
    • Europe
    • Exponential Tech
    • GDP
    • Housing
    • Imports & Exports
    • Market Fundamentals
    • Money & Prices
    • Oil
    • Production
    • Productivity
    • Wages & Salaries
    Categories
    About Us
    • Our Purpose
    • Editorial Board
    • Thank you / Credit
    • Contact our writers
    • Disclaimer and Privacy
    © 2014-2023 Fed Dashboard & Fundamentals, a public service of ValueBridge Advisors, LLC

    Type above and press Enter to search. Press Esc to cancel.