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Dividend yield strategies in the British stock market

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  • Greg Filbeck
  • Sue Visscher
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    Abstract

    One particular investment strategy, a dividend yield strategy, has been in existence for several years. This strategy consists of investing an equal dollar amount in each of the ten stocks of a market index with the highest dividend yields. With yearly rebalancing, the portfolio return in the United States over time has exceeded that of the Dow. In this paper, we find that a similar dividend yield investment strategy in Britain was not effective between March 1984 and February 1994. The portfolio returns exceeded the market returns on both unadjusted and risk adjusted bases, in only four years. The superior multiple year Top Ten portfolio performances were primarily due to the outstanding second year returns.

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    File URL: http://www.tandfonline.com/doi/abs/10.1080/135184797337372
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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal The European Journal of Finance.

    Volume (Year): 3 (1997)
    Issue (Month): 4 ()
    Pages: 277-289

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    Handle: RePEc:taf:eurjfi:v:3:y:1997:i:4:p:277-289

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    Related research

    Keywords: Dividend British Investment Strategy;

    References

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    1. Gombola, Michael J & Liu, Feng-Ying L, 1993. "Dividend Yields and Stock Returns: Evidence of Time Variation between Bull and Bear Markets," The Financial Review, Eastern Finance Association, vol. 28(3), pages 303-27, August.
    2. Goetzmann, William Nelson & Jorion, Philippe, 1993. " Testing the Predictive Power of Dividend Yields," Journal of Finance, American Finance Association, vol. 48(2), pages 663-79, June.
    3. Corhay, Albert & Hawawini, Gabriel & Michel, Pierre, 1987. " Seasonality in the Risk-Return Relationship: Some International Evidence," Journal of Finance, American Finance Association, vol. 42(1), pages 49-68, March.
    4. Christie, William G., 1990. "Dividend yield and expected returns *1: The zero-dividend puzzle," Journal of Financial Economics, Elsevier, vol. 28(1-2), pages 95-125.
    5. Philippe Jorion & William N. Goetzmann, 1998. "A Longer Look at Dividend Yields," Yale School of Management Working Papers ysm41, Yale School of Management.
    6. Litzenberger, Robert H. & Ramaswamy, Krishna, 1979. "The effect of personal taxes and dividends on capital asset prices : Theory and empirical evidence," Journal of Financial Economics, Elsevier, vol. 7(2), pages 163-195, June.
    7. Blume, Marshall E, 1980. "Stock Returns and Dividend Yields: Some More Evidence," The Review of Economics and Statistics, MIT Press, vol. 62(4), pages 567-77, November.
    8. Litzenberger, Robert H & Ramaswamy, Krishna, 1982. " The Effects of Dividends on Common Stock Prices: Tax Effects or Information Effects?," Journal of Finance, American Finance Association, vol. 37(2), pages 429-43, May.
    9. Gombola, Michael J & Liu, Feng-Ying, 1993. "Considering Dividend Stability in the Relation between Dividend Yields and Stock Returns," Journal of Financial Research, Southern Finance Association & Southwestern Finance Association, vol. 16(2), pages 139-50, Summer.
    10. Basu, S, 1977. "Investment Performance of Common Stocks in Relation to Their Price-Earnings Ratios: A Test of the Efficient Market Hypothesis," Journal of Finance, American Finance Association, vol. 32(3), pages 663-82, June.
    11. Elton, Edwin & Gruber, Martin & Rentzler, Joel, 1983. "A simple examination of the empirical relationship between dividend yields and deviations from the CAPM," Journal of Banking & Finance, Elsevier, vol. 7(1), pages 135-146, March.
    12. Keim, Donald B., 1985. "Dividend yields and stock returns: Implications of abnormal January returns," Journal of Financial Economics, Elsevier, vol. 14(3), pages 473-489, September.
    13. Black, Fischer & Scholes, Myron, 1974. "The effects of dividend yield and dividend policy on common stock prices and returns," Journal of Financial Economics, Elsevier, vol. 1(1), pages 1-22, May.
    14. Fama, Eugene F. & French, Kenneth R., 1988. "Dividend yields and expected stock returns," Journal of Financial Economics, Elsevier, vol. 22(1), pages 3-25, October.
    15. William F. Sharpe, 1965. "Mutual Fund Performance," The Journal of Business, University of Chicago Press, vol. 39, pages 119.
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    Cited by:
    1. Janusz BrzeszczyƄski & Jerzy Gajdka, 2007. "Dividend-Driven Trading Strategies: Evidence from the Warsaw Stock Exchange," International Advances in Economic Research, Springer, vol. 13(3), pages 285-300, August.
    2. Antje Henne & Sebastian Ostrowski & Peter Reichling, 2009. "Dividend yield and stability versus performance on the German stock market: a descriptive study," Review of Managerial Science, Springer, vol. 3(3), pages 225-248, November.
    3. Antje Henne & Sebastian Ostrowski & Peter Reichling, 2007. "Dividend Yield and Stability versus Performance at the German Stock Market," FEMM Working Papers 07017, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
    4. Chin-Sheng Huang & Chun-Fan You, 2014. "Dividend-Yield Trading Strategies: Evidence from the Chinese Stock Market," International Journal of Economics and Financial Issues, Econjournals, vol. 4(2), pages 382-399.

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