20161026-三星证券-Dividend_investing_-_A_new_factor_17页_900kb

Summary of Document on Dividend Investing

Core Content

This document presents a quantitative analysis of dividend investing strategies, focusing on the use of minimum dividend yield as a more reliable indicator than simple dividend yield. It outlines two main strategies—absolute return and relative return—and provides a list of top dividend picks based on conservative screening criteria.

Main Views

1. Dividend Yield Indicators

• Simple Dividend Yield is based on consensus forecasts for DPS (dividends per share) and may not reflect potential declines in dividends due to earnings deterioration.
• Minimum Dividend Yield is calculated as minimum DPS estimate / current share price, offering a more conservative and realistic view of future dividend potential.
• The safe dividend yield is a hybrid approach:
  • If a stock's simple yield is above the market average, use the minimum yield.
  • If a stock's simple yield is below the market average, use the simple yield.
  • This method has a high correlation with simple yield but delivers better returns and lower volatility.

2. Absolute Return Strategies

• Two strategies are proposed:
  • Strategy 1: Select stocks where simple yield exceeds 3-yr KTB yields + 0.5%.
  • Strategy 2: Select stocks where minimum yield exceeds 3-yr KTB yields + 0.5%.
• Back-testing over 10 years (Jan 2005 – Sep 2016) showed:
  • Strategy 1: 12.0% annualized return, 21.7% standard deviation, 0.4 Sharpe ratio.
  • Strategy 2: 17.9% annualized return, 25.7% standard deviation, 0.6 Sharpe ratio.
• Strategy 2 outperformed Strategy 1, despite investing in fewer stocks, due to its more conservative approach and better risk-adjusted returns.

3. Relative Return Strategies

• A long/short strategy based on the safe dividend yield factor (FY1):
  • Long positions in stocks with high safe dividend yields.
  • Short positions in stocks with low safe dividend yields.
• Back-testing results:
  • Safe dividend yield factor (FY1): 47.6% cumulative return, 3.7% annualized return, 10.2% standard deviation.
  • Simple dividend yield factor (FY1): 26.2% cumulative return, 2.2% annualized return, 11.8% standard deviation.
• The safe dividend yield factor showed a 76% correlation with simple yield, but better performance and lower volatility.

4. Top Dividend Picks

• Based on screening criteria:
  • Minimum yield of 2.5%
  • Exclusion of stocks with P/E ≥ 20x or P/B ≥ 2x
  • Yield growth of -10% or below
• Top picks include:
  • SK Telecom
  • Industrial Bank of Korea
  • Kepco
  • Woori Bank
  • Samsung Card

Key Information

• Minimum dividend yield is more reliable for identifying stable dividend stocks.
• Absolute return strategies using minimum yield outperform those using simple yield.
• Relative return strategies using the safe dividend yield factor have shown better performance and lower volatility.
• Dividend yield factor (FY1) has been effective since mid-2015, especially in a low-interest rate environment.
• Kospi 200 dividend yield (based on 2016 estimates) is 1.7%, higher than 1.3% for 3-yr KTB yields.
• The safe dividend yield method is suggested as a useful alternative to the simple yield method due to its higher correlation, better returns, and lower volatility.

Strategy Recommendations

• For absolute return: Use minimum dividend yield to select stocks, ensuring the yield exceeds 3-yr KTB yields + 0.5%, and weight them equally.
• For relative return: Use the safe dividend yield factor, which offers a more robust approach for long/short strategies.
• Top dividend picks are recommended for their conservative yield, stable earnings, and favorable valuation metrics.

Conclusion

• The minimum dividend yield approach is superior for selecting stable dividend stocks, as it accounts for potential earnings declines and offers better returns and lower volatility.
• The safe dividend yield factor is an effective alternative to simple yield for both absolute and relative return strategies.
• The document highlights the importance of dividend yield screening in a low-interest rate environment and suggests that these strategies are likely to remain popular in the short term.