The Most Profitable Dividend Strategy Is the Simplest --- A very, very boring approach to investing that works in most market environments

"It's one of the most successful investing strategies, but you can easily do better.

Dozens of funds and hundreds of billions of dollars of conservative investors' savings have been deployed in the belief that companies that steadily increase their dividends over time have been the best market performers in the long run.

The dividend growth tail sometimes wags the dog: The list of 69 S&P 500 Dividend Aristocrats, for example, includes companies that have raised payouts for at least 25 years. When management teams decide they can't raise them by even a penny -- Pfizer, General Electric, AT&T and Walgreens all lost the crown -- they have been punished. Exxon Mobil tied itself in knots five years ago to keep the distinction, doing so by a whisker.

Dividends have become less important over the decades, but they are hardly extinct. Ed Clissold of Ned Davis Research points out that more than four-fifths of companies in the S&P 500 pay one, and that 324 either grew or initiated them in the past year.

Though not intentionally, it was some research years ago from his firm that stoked the obsession with dividend growers. Using an older technique for calculating returns that has been widely reproduced, it showed stellar results specifically for that type of stock.

The research outfit's "added methodologies to reflect changes in the industry" show that dividend growers have done well, but that a more profitable strategy -- albeit one that comes with greater volatility and turnover -- is to simply focus on dividend yield [1]. The top half of yielders have beaten growers in both bull and bear markets since 1973.

Be careful focusing only on yield, though: A do-it-yourself method that worked until it didn't was the "Dogs of the Dow," popularized in a 1991 book by Michael O'Higgins, "Beating the Dow." It recommended buying the top 10 dividend-yielders in the 30 stock blue-chip index each year.

Consider a twist: During a recent discussion, Bank of America strategist Savita Subramanian was asked by podcast host Meb Faber whether she had some simple screens she recommends for picking stocks.

She said dividing large capitalization, dividend-paying stocks into five buckets by yield is the first step. It isn't the top group that one should buy, though, because those really could be dogs -- sort of like Walgreens before its meltdown. Instead, buy the second-highest group of yielders.

"So it's just like the Steady Eddie strategy that anybody can run . . . you can get this data off the internet for free. You can run it yourself every month, and it's just been, like, a really kind of an interesting, very, very boring unsexy strategy that seems to work in most market environments," said Subramanian.” [2]

 

1. "The dividend yield or dividend–price ratio of a share is the dividend per share divided by the price per share. It is also a company's total annual dividend payments divided by its market capitalization, assuming the number of shares is constant. It is often expressed as a percentage."

2.   EXCHANGE --- Heard on the Street: The Most Profitable Dividend Strategy Is the Simplest --- A very, very boring approach to investing that works in most market environments. Jakab, Spencer.  Wall Street Journal, Eastern edition; New York, N.Y.. 10 May 2025: B12.