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Bird in Hand - three approaches to generating income from dividends

Dec. 29, 2017

Speaker : Dr. Jan-Carl Plagge , Director, Market Development, STOXX Ltd.

Dec. 29, 2017 Speaker : Dr. Jan-Carl Plagge

For investors seeking steady cash flows, generating income in an environment that, since the apex of the global financial crisis in 2008, has seen interest rates and bond yields in developed economies fall to historically unprecedented levels, has become increasingly difficult. Fortunately, equity dividend strategies present a viable alternative. In this paper, we present three approaches to generating dividend income in the equity space.

The three approaches can broadly be summarized as follows. The first aims to maximize dividend yields as sole objective. The second seeks to increase the dividend yield whilst taking into account dividend yield stability, and the third blends increasing dividend yields with a low-risk approach. These three approaches offer different styles of dividend investing that enable investors with varying objectives to access steady cash flows within equity markets.

The first section of this paper provides a brief introduction into the methodology underlying these approaches. In the second section, we analyze the resulting risk, return and dividend characteristics on a more general level, before investigating the source of return, valuation as well as allocation characteristics in more detail.

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Anand Venkataraman, CFA, Head of Product Management – Index, Qontigo; Ladi Williams, Product Manager – Index, Qontigo Feb. 19, 2020
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