May 28, 2020

HGA Research Discovers One Dividend Factor Far and Away More Valuable than Others

This research examines how dividend information can be used for allocating equity markets. We look at dividend yields and as well as trailing and forecsted dividend growth for equity allocation decisions among countries.

At the country level, the dividend yield is the ratio of total dividends paid out by all the companies in a country’s equity index to the market capitalization of the country’s index. Dividend growth at the country level is measured by the growth of total dividends for all companies in the country’s index. Trailing dividend growth measures the growth in total dividends over a trailing 12-month period. For the purpose of this research, forecasted dividend growth assumes that we know with perfect foresight dividends over the next 3 months. As an example of perfect foresight forecasted dividend growth, for the beginning of January 2009, growth of dividends is calculated as the changes in total 12-month trailing dividends at the end of March 2009 relative to the total 12-month dividends at the end of March 2008.

At the individual stock level, assuming the dividend is not raised or lowered, the yield will rise when the price of the stock falls, and it will fall when the price of the stock rises. Because dividend yields change with the stock price, it often looks unusually high for stocks that are falling quickly. This is also true at the country level. Dividend yields can be considered a value factor, like price-to-earnings and price-to-book. On the other hand, dividend growth can be considered a growth factor since growing dividends either for a company or at the country level can indicate growth in earnings as well as payouts in the form of dividends.

We tested dividend yield, trailing dividend growth, and forecasted dividend growth (1 quarter forward) as standalone investment factors within the Heckman Global Advisors (HGA) country allocation framework. The HGA framework forms portfolios by over or underweighting markets relative to their respective MSCI benchmarks according to how high they score on the investment factor that is being tested. Higher scores are given to higher dividend yields and higher dividend growth rates. Rebalancing is done at the end of each month, and returns adviser compared to those of the benchmark. We tested the efficacy of the factor within the MSCI AllCountry World (ACWI) universe.

The results of the analysis are below. Dividend yield, like most other value factors for allocating countries or individual equities, was an effective factor until 2008. Since 2009, dividend yield has not been effective. The same can be said for dividend growth based on trailing 12-month dividends. However, forecasted dividend growth (assuming perfect foresight in dividends over the next 3 months) has not only been strong before 2009 but has continued to add value for allocating markets since then. Dividend growth, especially if one can get some insight into next quarter’s dividends, seems to be strong growth factor for allocating global equities.

Table 1

Alpha of Dividend Yield, Trailing Dividend Growth, and Forecasted Dividend Growth

Annualized Alpha relative to MSCI ACWI Index

Annualized Alpha relative to MSCI ACWI Index


Jan. 01, 1989 - April 30, 2020

Jan. 01, 2009 - April 30, 2020

Dividend Yield


Dividend Growth


Forecasted Dividend Growth

1 Quarter ahead



Source: MSCI and Heckman Global Advisors

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