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Emphasizing high dividend income when building a portfolio is, in a general sense, a bad idea. Usually.

Some people start with the throw-your-hands-up point of view that all stock market prices are pretty much random, so you might as well get a dividend--thereby falling for the myth that a dividend is an "extra" you get on top of stock returns. Not noticing that the stock price (and market cap) of a company drops each time a dividend is paid out. It isn't free money, it's just a different WAY of getting your money.

Then there's the observation that a high dividend is often a sign of a dead end firm - nobody is bidding the price up for a reason, and the dividend yield doesn't fall to a typical level. So a group of high dividend companies is at risk of being a group of dead end companies, cash cows at best, or headed for the graveyard. The average total return from a US stock with a dividend yield over about 8% is negative: the stock price drops on average at more than 8%/year.

But there are two good solid cases for a dividend-oriented portfolio. One obvious, one less so.

The obvious one is that your portfolio may be subject to tax laws that make a dividend very lightly taxed. This is often true, but of course it's often true that capital gains are also lightly taxed, so the difference may not be that big a deal. Many people would be better off ignoring dividends, buying the best companies they can identify, and (if needed) selling small amounts of stock from time to time for income. There isn't much more to be said about this because it depends so much on where you live, and where the company lives. For any subgroup the subject has been beaten to death elsewhere.

But, finally to the point of the post, the second and more hidden advantage of dividend investing is that dividends are not nearly as cyclical as stock prices. Not only does this mean that you don't get that much of a "pay cut" during a market downturn, but also that available dividend yields on new purchases tend to be correspondingly higher. This means that some turnover in a portfolio isn't necessarily a problem.

Why this post?

The outlook for US markets is not currently bright. I have no idea if the next year will be up or down, but the cyclically earnings yield is at the very low end of its historical range--you're not getting much in the way of earnings for your investing dollar--and that is by far the best predictor of poor returns over the next 5-10-15 years. Makes sense: in a way, all stock investing, whether growth or value, is about buying a stream of future earnings. If you pay twice as much for it, you get half the value in return.

Long story short, it might not be such a bad time for someone who has never been interested in a dividend-focused portfolio to consider whether it might make sense. If income from a portfolio is its prime function for you, the resilience of dividends relative to capital balances could be an advantage in the next few years.

So, to that end, here is a proposal for a way to have a portfolio with an unusually high dividend yield while (to the extent it works) avoiding the problem of high dividend payers that are bad investments on the capital side.

Quant investing to the rescue!

The portfolio I have been testing:
* Start with the set of 1700 stocks currently covered by Value Line. They are almost all American, and almost all bigger than microcaps, with a few exceptions to each of those.
* Find the 400 with the highest dividend yield.
* Of those, find the 80 with the highest reported ROE (Return on Shareholders' Equity), as calculated by Value Line from the most recent annual statements. This data field doesn't change very often, minimizing turnover.
That's the basic calculation for the nominee stocks.

The suggested portfolio management:
* Buy equal dollar amounts of the 50 stocks with the highest ROE. This is always a 50 stock portfolio, no more than 2% of your money put into any position, so in that sense it's only 29% of the risk of the S&P 500.
* Hold for three months.
* Recalculate the top 80 picks again.
* At the next trading date, sell any stocks no longer ranked among the top 80.
* Replace those with equal dollar amounts of the highest ranked ones (highest ROE) that you don't already own.
* Once a year, rebalance all positions to be equally weighted. (trim those that have gone above 2% of your portfolio, and top up those that are under 2%).

The end result is a portfolio that is a bit like a well built junk bond portfolio: a lot of the picks will be bad companies with poor prospects and a high dividend yield, but you're minimizing your losses by choosing from among those the firms with the highest ROE, which is the best single clue that a business actually has some good economic characteristics. You still get some losers, but they losses are more than made up for by the gains...and you get a very healthy dividend yield.

Historical results:
I built and started testing this screen a little over five years ago. In the backtest 2000-2019 it beat the market by quite a bit, 6.9%/year, allowing for 0.4% round trip trading costs. It has been basically market tracking in the five years since creation, which sounds bad, but the rate of return is within 0.1%/year of what it was in the backtest era, so in that sense it just keep chugging along.

Of more interest is the dividend yield.
I didn't calculate the yield for every date, but roughly monthly, with interpolation.
An average year since mid 2006 (19 years) had a prospective dividend yield averaging 4.30%. (prospective in that it counts neither the dividend increases nor dividend cuts you'd get in the first year of holding a stock--not an issue).
At times of low markets, the prospective yield is higher, and vice versa. The lowest prospective yield was in the 3.1%-3.2% range, hit a few times in 2008, 2009, and 2011. The highest forward yield for a date that I calculated it was 11.3% during the pandemic sell off.


I approximated the portfolio value and the dividend income separately since 2006.
The average rolling year saw the portfolio's value rise about 10.3%/year, and a dividend yield of about 4.3% on the portfolio value at the start of the rolling year. The cash dividend income rose at a rate of about 9.8%/year. The market has been strong (S&P total return 11.9%/yera), so I would not expect anything like that growth rate in future, but I would still expect a good solid dividend which also rises in real terms over time.

What sort of firms does it pick?
If you were starting this week, the prospective yield is 4.54%. The median ROE is 46.1%, lowest 33%. Median market cap $15.5bn: it mostly likes big companies. Some fairly well known firms in the top 50: Cisco, J&J, Coke, Amgen, Clorox, Pepsi, Nike, Kellogg, Albertsons, Whirlpool, Hasbro.

For those who like to improve quant screens: my advice in this case is “don’t”. I have tried innumerable variations of this trying to improve the overall returns or reduce the number of dud companies picked, but (a) nothing seems to work, (b) simplicity has its own resilient beauty, and (c) this specific simple version now has over five years of post-discovery data.

Jim

Very nice screen Jim!

50 stocks is a lot to manage though. Are the results much different if you cut to 20 stocks, drop when out of 50?

50 stocks is a lot to manage though.

Yes and no. These days with brokers that allow uploading a spreadsheet list of tickers and one-button rebalance, it's not really so bad.

And the turnover is not very large...about 2.5 picks out of 50 are swapped in the average quarter. Since things would only rarely fall of the list due to a big drop in ROE or a cut dividend, I presume a lot of the turnover comes from selling things that have gained in price (reducing the prospective yield) to buy something else that is [still] cheap relative to the coupon.


Are the results much different if you cut to 20 stocks, drop when out of 50?

The returns are fine in backtest. About the same total return, though more jagged of course.

The problem is that you'll start to get a lot more randomness...potential hits from the inevitable bad picks. I wouldn't put 5% of my portfolio into a single quant pick, just live with a bit of typing once in a while. I think a thing like this, designed to create a portfolio you could actually live from, needs a bit less risk. I wouldn't go under 40. (so maybe top 40, hold-till-drop at rank 70)


Since I don't really buy new US stocks any more, I am working up an international version, starting from a broad list of candidates chosen with the FT Global Equity screener. It has both ROE and 5-year-average ROE, so I plan to use the average of the two. I have no way of backtesting the result, but I don't expect it to be too bad other than the fact that ex-US dividends are more variable and more cyclical than US dividends. The hard part has been making the distinction between where a stock is listed (the country filter at FT) and the actual domicile of the company, which determines things like the withholding tax rate on dividends. So I'm able to sort on the after-tax yield. Most folks live in countries with double-tax treaties, so the withheld tax shows up as a credit on your local tax return, but for me it's a dead loss.
My first cut gave these results based on Friday's data:
Average before-withholding-tax yield of 6.37%/year
Average after-withholding-tax yield of 5.21%/year
Median 5-year growth in EPS: 15.3%/year
Median ROE, five year average: 29.5%
Median market cap: 3.2 billion euros
Average earnings yield: 10.1% (equating to a P/E of 9.9).
If that were a single company, it would seem to be pretty attractive investment.


The eligible countries I picked were Europe (but not some eastern Europe), Canada, Australia, New Zealand and Japan. The big "gotcha" is the enormous number of firms from all over the world that have a secondary listing in Germany, which have to be checked and eliminated individually. The more subtle things are dual share classes, so I'm simply picking the one with the most trading volume. Once the master table is set up, redoing the ranking is pretty easy.

Jim

FWIW

These are my estimates of the portfolio balance for some dates since 2006 spaced roughly quarterly, and the estimates of the forward one year cash dividends.
Note! That's quarterly dates, but anticipated one YEAR of dividends.

The dividend dollar amounts expected are just the balance on that date times the estimated forward yield at the date shown. The yields are calculated by actually running the screen on old Value Line export files, though I didn't do it for every single date.

The numbers are probably off by a bit, mainly because forward dividend yield figures are not always right. But the "real" figures are probably not too different. Except maybe the spring 2020 one, since the pandemic threw off dividends by quite a bit - lots of cuts.

              Capital    Fwd div
2006-07-03      10000        340
2006-10-02      10508        368
2007-01-03      11189        355
2007-04-02      11688        402
2007-07-02      12834        406
2007-10-01      12748        431
2008-01-07      11453        449
2008-04-07      11838        489
2008-07-08      11066        514
2008-10-06       9886        543
2009-01-05       9009        518
2009-04-06       8457        490
2009-07-07       9537        511
2009-10-05      11787        533
2010-01-05      13131        542
2010-04-06      13576        571
2010-07-06      12321        599
2010-10-04      13465        579
2011-01-03      14663        598
2011-04-04      15301        563
2011-07-05      15570        617
2011-10-03      13017        699
2012-01-03      14750        627
2012-04-02      15739        664
2012-07-02      15153        690
2012-10-01      15700        708
2013-01-07      16184        773
2013-04-02      18122        774
2013-07-01      18993        734
2013-10-07      19654        761
2014-01-06      21095        776
2014-04-07      21094        849
2014-07-08      22149        795
2014-10-06      21228        877
2015-01-05      21759        895
2015-04-07      22850        934
2015-07-07      21791        905
2015-10-05      20949        924
2016-01-05      20673        989
2016-04-04      21429       1064
2016-07-05      21823        939
2016-10-03      23172        935
2017-01-03      23759        938
2017-04-03      24704       1001
2017-07-03      25204       1015
2017-10-02      25423        953
2018-01-02      27587       1015
2018-04-03      26302       1116
2018-07-02      26685       1038
2018-10-01      27196       1046
2019-01-07      24775       1116
2019-04-01      27225       1194
2019-07-01      26346       1117
2019-10-07      25902       1183
2020-01-06      28111       1208
2020-04-06      19287       1837
2020-07-07      26401       1319
2020-10-05      29149       1352
2021-01-05      33496       1407
2021-04-06      38394       1436
2021-07-06      40615       1333
2021-10-04      39978       1456
2022-01-03      41789       1523
2022-04-04      40767       1642
2022-07-05      36599       1830
2022-10-03      34537       1818
2023-01-03      38092       1785
2023-04-03      39058       1761
2023-07-03      40251       1858
2023-10-02      38497       1884
2024-01-02      43934       2005
2024-04-02      45616       1998
2024-07-01      43078       1859
2024-10-07      46235       1940
2025-01-06      43570       1926

Jim

Do you mind sharing the picks for both the USA and International baskets?

Thanks in advance

As always, don't expect all of the stocks to look attractive, this is rather like a junk bond portfolio in some ways. Also, Murphy's law for MI: the ones that look stinky and you eliminate are the ones that do best : )

And don't expect VL's forward dividend yield to be correct in all cases - it includes their expectations.

Picks from VL's file released last Monday

Rank   Ticker   Fwd Yield         ROE       Market Cap  Company
1       KMB       3.852%        292.73        44092.9   Kimberly-Clark
2       CLX       3.965%        262.19        15561.8   Clorox Co.
3       IRM       3.091%        251.34        29786.0   Iron Mountain
4       ENR       5.792%        177.68         1573.8   Energizer Holdings
5       AMGN      3.225%        161.00       156906.2   Amgen
6       SYY       2.827%        116.50        36229.8   Sysco Corp.
7       NSP       3.965%         93.81         2249.7   Insperity Inc.
8       LMT       2.775%         84.25       106387.8   Lockheed Martin
9       WMG       2.733%         83.97        13874.2   Warner Music Group
10      SPG       5.513%         76.41        52475.5   Simon Property Group
11      WEN       5.009%         74.93         2248.3   Wendy's Company
12      BLMN      7.444%         65.54          708.8   Bloomin' Brands
13      PEP       4.142%         62.33       178352.7   PepsiCo Inc.
14      KTB       3.156%         61.44         3653.0   Kontoor Brands
15      WU       10.892%         61.38         3071.9   Western Union
16      RHP       4.898%         54.68         5888.8   Ryman Hospitality
17      SBGI      7.692%         53.17          932.4   Sinclair Inc.
18      QSR       3.628%         51.64        30740.9   Restaurant Brands Int'l
19      KO        2.872%         50.14       310189.3   Coca-Cola
20      BBY       5.460%         49.14        15350.9   Best Buy Co.
21      WES       9.426%         48.63        14723.0   Western Midstream
22      HAS       4.129%         48.61         9674.3   Hasbro Inc.
23      DRI       2.621%         47.83        25489.2   Darden Restaurants
24      HSY       3.329%         47.11        34046.4   Hershey Co.
25      BKE       3.273%         46.12         2216.7   Buckle (The) Inc.
26      AES       6.206%         46.07         8172.7   AES Corp.
27      LAZ       4.636%         43.99         4124.6   Lazard Inc.
28      HESM      7.708%         42.03         4587.1   Hess Midstream LP
29      MRK       3.965%         41.98       202091.7   Merck & Co.
30      ACI       2.828%         40.82        12239.7   Albertsons Companies
31      LW        2.737%         40.58         7870.0   Lamb Weston Holdings
32      NKE       2.643%         39.71        93213.5   NIKE Inc. 'B'
33      UPS       6.560%         39.56        85672.4   United Parcel Serv.
34      IMBBY     5.869%         38.66        34899.0   Imperial Brands PLC
35      DEO       4.065%         38.57        64866.3   Diageo plc
36      WHR       7.757%         37.76         4806.5   Whirlpool Corp.
37      SCCO      2.702%         36.81        84974.7   Southern Copper
38      DKS       2.744%         36.43        14621.7   Dick's Sporting Goods
39      STZ       2.614%         36.34        30121.7   Constellation Brands
40      UL        3.048%         35.83       158703.0   Unilever PLC ADR
41      SLVM      3.943%         35.65         2149.0   Sylvamo Corp.
42      K         2.879%         35.39        28313.7   Kellanova
43      AMT       3.375%         35.33       100347.7   Amer. Tower 'A'
44      OMC       4.030%         35.30        14301.5   Omnicom Group
45      LAMR      5.224%         34.55        12457.8   Lamar Advertising
46      UPBD     11.293%         34.05         1520.2   Upbound Group
47      JNJ       3.310%         33.90       373497.4   Johnson & Johnson
48      BX        4.223%         33.80       103487.0   Blackstone Inc.
49      KLG       4.306%         33.58         1339.6   WK Kellogg
50      CSCO      2.606%         33.32       254192.4   Cisco Systems

Note that it really shouldn't include Kellanova, which is about to be bought out. Requiring the Timeliness field to be populated would fix that--I should probably add that.

Of course, as a side note, the latest news is that the acquisition might fall through because of EU competition concerns. If it doesn't fall through, there's a nice quick buck to be made. Buyout price for K is $83.50 cash, current price is $78.59, and there's a 2.9% dividend for any delays. Next ex-div date is start of Sept, I think. All you need is a spy in the European Commission to tell you what they're going to rule.

Jim

I wonder if you could test it against a popular dividend ETF like SCHD?

These are my estimates of the portfolio balance for some dates since 2006 spaced roughly quarterly, and the estimates of the forward one year cash dividends.

In case it wasn't clear, that table shows the estimated capital balance assuming you spend all dividends--no reinvestment.

Jim

I wonder if you could test it against a popular dividend ETF like SCHD?

I don't like funds, as a rule. But probably pretty similar, to a first approximation.

The main differences seem to be
* their index is "capped cap weight", cap weight with a cap of 4% for any given company.
* it is large caps only
* they have a weighting on the factor "ratio of cash flow to total debt", which I guess is to ensure resilience through coverage. Not a bad idea, if you're looking for safe/quality companies, which my screen isn't
* they have a greater tilt towards dividend growth rate and long history, rather than dividend now
* their methodology is widely known, so arbs can and will front run it. Not as big a problem as with the S&P 500 or Russell 1000, but probably measurable.
* small fees, and probably some carefully hidden costs too

Presumably because of some mix of the above, the dividend yield seems to be lower. Comparing my estimate of what they actually paid (forward one year payments divided by current price, dates since 2012), to my figures (forward one year indicated yield divided by current price, same date range), their yield came out to 3.45% on the average starting date, the MI screen came out to 4.29%.

Also lower total return if dividends had been invested tax free, difference 2.88%/year. To be fair, their return is a real world result, and mine is mostly a backtest. I was probably overly generous with the trading costs, though. 0.4% round trip is pretty high for large caps these days, especially since it's essentially zero if you use MOC orders.

Jim

* Start with the set of 1700 stocks currently covered by Value Line. They are almost all American, and almost all bigger than microcaps, with a few exceptions to each of those.

I recall that there were efforts to reproduce (roughly) the VL1700 list in SiPro. Anyone have a handy link to that?
Curious to see if one could reasonably implement this in GTR1.

Mark

Curious to see if one could reasonably implement this in GTR1.

As I recall, many such screens usually behave differently because of the quirks of the way VL calculates ROE. The "Return on Shareholders Equity" field is calculated only annually, and I think they might have some adjustments to remove extraordinary items?? That's not to say it would be better or worse, just somewhat different.

Jim

50 stocks is a lot to manage though. Are the results much different if you cut to 20 stocks, drop when out of 50?

Not difficult with an account at M1.com.
Set up a "pie" with 50 stocks ("slices").
Select all, and click "equal weight" and save.
Set up a portfolio that uses that pie.
Go to the portfolio and look at the buy & sell list, make sure it is as expected.
It will buy everything at the next trading window, usually the next morning.

When it comes time to rebalance, go to the pie, delete the ones that fell off the screen and add the ones that are new.
Select all, and click "equal weight" and save.
Go to the portfolio and look at the buy & sell list, make sure it is as expected.
It will sell & buy everything at the next trading window, usually the next morning.
Unless you tell the portfolio to do equal weight, it will only trade the ones that were added & deleted.

FWIW, I equal weight the pie but not the portfolio. That way it doesn't touch the stocks that are kept.

I did the closest test to this on zacks' backtester and the return is the same as the S&P

As I recall, many such screens usually behave differently because of the quirks of the way VL calculates ROE.

Probably. There are a bunch of ROE-type screens in SiPro, for example this random one from an old list I had:
http://gtr1.net/2013/?~ROE_Cash2020_Elan:h63f0.4::...

I was thinking more about the starting list of VL1700 stocks.
Can't remember how well the attempts to reproduce that list in SiPro were.

Mark

Picks from VL's file released last Monday

Here is a very quick and dirty GTR1 version.
This just started with a version of Elan's ROE screen I had bookmarked.
Changed a bunch of stuff to get close to what Jim mentioned.

http://gtr1.net/2013/?~ROE_Cash2020_Elan%20to%20Mu...

There are myriad reasons why picks would not agree, among others:
- there is not a way that I'm aware of to replicate the VL1700 stocks in GTR1
- definition of ROE could be different
- calculation of yield could be different
- I have some crap filters in the screen that could affect results

This table compares Jim's current picks to the picks from the above screen.
Of the 50 picks Jim has, 29 of them appear in the GTR1 output, for a bit better than 50% agreement.
There are some wild numbers in the GTR1 output that would have to be tracked down.
Jim's 50 have an average yield of 4.54%, and dropping the two wild ones from the GTR1 list gets about the same result.

        Jim   Screen    Jim   Screen    Jim    Screen     Jim   Screen
Rank  Ticker  Ticker  Yield   Yield     ROE     ROE      Mcap    Mcap
  1     KMB     CLX   3.85%   4.00%   292.73  2570.37   44093   15049
  2     CLX    ABBV   3.97%   3.54%   262.19  295.4225  15562   327632
  3     IRM     KMB   3.09%   3.91%   251.34  223.8874  29786   42781
  4     ENR     HD    5.79%   2.64%   177.68  184.0226   1574   347011
  5    AMGN     DKL   3.23%   10.16%    161   153.0801  156906   2336
  6     SYY     YOU   2.83%   3.14%   116.5   151.0711  36230    2281
  7     NSP     WEN   3.97%   8.90%   93.81   147.0814   2250    2158
  8     LMT     CQP   2.78%   5.78%   84.25   120.3216  106388  27446
  9     WMG     ITW   2.73%   2.49%   83.97   103.9494  13874   70754
 10     SPG     SYY   5.51%   2.75%   76.41   99.30801  52476   35993
 11     WEN    AMGN   5.01%   3.28%   74.93   95.58562   2248   155962
 12    BLMN     LMT   7.44%   2.75%   65.54   82.34325    709   112307
 13     PEP     WMG   4.14%   2.73%   62.33   79.71781  178353  13746
 14     KTB     NVO   3.16%   3.07%   61.44   75.17325   3653   331181
 15     WU      RRR   10.89%  3.96%   61.38   63.13233   3072    3010
 16     RHP     ZIM   4.90%   41.03%  54.68   59.44314   5889    2096
 17    SBGI     KTB   7.69%   3.26%   53.17   53.71455    932    3544
 18     QSR     NSP   3.63%   3.96%   51.64   52.94118  30741    2283
 19     KO      PEP   2.87%   4.40%   50.14   50.95438  310189  177267
 20     BBY     DRI   5.46%   2.49%   49.14   47.83477  15351   26305
 21     WES    OMAB   9.43%   4.71%   48.63   45.66474  14723    4894
 22     HAS     BKE   4.13%   8.76%   48.61   43.99281   9674    2248
 23     DRI    PAYX   2.62%   2.57%   47.83   42.26789  25489   54936
 24     HSY     UNP   3.33%   2.43%   47.11   41.97269  34046   131797
 25     BKE    HESM   3.27%   7.29%   46.12   41.59322   2217    5106
 26     AES     KO    6.21%   2.93%   46.07   41.15716   8173   301815
 27     LAZ     ENR   4.64%   5.86%   43.99   40.62733   4125    1479
 28    HESM     WES   7.71%   9.47%   42.03   40.18659   4587   14651
 29     MRK     DKS   3.97%   2.77%   41.98   37.81615  202092  14091
 30     ACI     KEN   2.83%   13.30%  40.82   37.5593   12240    1885
 31     LW     SCCO   2.74%   2.87%   40.58   37.48524   7870   76652
 32     NKE     UPS   2.64%   6.58%   39.71   37.39464  93214   84400
 33     UPS     AES   6.56%   6.68%   39.56   37.28374  85672    7497
 34   IMBBY     SEE   5.87%   2.59%   38.66   37.12245  34899    4573
 35     DEO     PAC   4.07%   3.87%   38.57   36.87775  64866   11337
 36     WHR     HAS   7.76%   4.15%   37.76   36.41337   4807    9459
 37    SCCO     MRK   2.70%   4.14%   36.81   36.0691   84975   198530
 38     DKS     K     2.74%   2.82%   36.43   35.24904  14622   27835
 39     STZ     HSY   2.61%   3.25%   36.34   35.17685  30122   34214
 40     UL      DEO   3.05%   3.17%   35.83   34.95721  158703  56544
 41    SLVM     NVS   3.94%   3.43%   35.65   33.51403   2149   228216
 42     K       OMC   2.88%   4.05%   35.39   33.14964  28314   13506
 43     AMT    CMBT   3.38%   73.02%  35.33   32.77101  100348   1832
 44     OMC     MTN   4.03%   5.72%    35.3   32.39893  14302    5765
 45    LAMR     NKE   5.22%   2.67%   34.55   32.18391  12458   88559
 46    UPBD    MPLX   11.29%  7.44%   34.05   32.07111   1520   52520
 47     JNJ     BBY   3.31%   5.48%    33.9   31.95802  373497  14689
 48     BX     HTHT   4.22%   5.74%    33.8   31.68084  103487  10375
 49     KLG    SLVM   4.31%   3.56%   33.58   31.4978    1340    2061
 50    CSCO     BMY   2.61%   5.25%   33.32   31.16338  254192  96117

Table of matches (a match means that Jim's pick for that rank appeared somewhere in the 50 screen picks).

 Jim   Screen   Match
 KMB     CLX      1
 CLX     ABBV     1
 IRM     KMB      0
 ENR     HD       1
AMGN     DKL      1
 SYY     YOU      1
 NSP     WEN      1
 LMT     CQP      1
 WMG     ITW      1
 SPG     SYY      0
 WEN     AMGN     1
BLMN     LMT      0
 PEP     WMG      1
 KTB     NVO      1
  WU     RRR      0
 RHP     ZIM      0
SBGI     KTB      0
 QSR     NSP      0
  KO     PEP      1
 BBY     DRI      1
 WES     OMAB     1
 HAS     BKE      1
 DRI     PAYX     1
 HSY     UNP      1
 BKE     HESM     1
 AES     KO       1
 LAZ     ENR      0
HESM     WES      1
 MRK     DKS      1
 ACI     KEN      0
  LW     SCCO     0
 NKE     UPS      1
 UPS     AES      1
IMBBY    SEE      0
 DEO     PAC      1
 WHR     HAS      0
SCCO     MRK      1
 DKS      K       1
 STZ     HSY      0
  UL     DEO      0
SLVM     NVS      1
  K      OMC      1
 AMT     CMBT     0
 OMC     MTN      1
LAMR     NKE      0
UPBD     MPLX     0
 JNJ     BBY      0
  BX     HTHT     0
 KLG     SLVM     0
CSCO     BMY      0
 
       Matches    29

Online states the 1700 represents about 90% of stocks so you could just use marketcap since Valueline isn't going to tell you their various criteria besides that.

Taking TGMark's initial SI-Pro screen, using my typical 'crap' filters, doing a bit of (mostly irrelevant) simplification, stripping out the derived fields to enable direct SI-Pro screening & out-sourcing the VL1700 replacement to the S&P500...
https://gtr1.net/2013/?~ROE_500:h63f0.1::styp.a:ne...

Offers 11.3% CAGR across the 50 stocks & 0.63 Sharpe, CAGR & Sharpe peaks at 4 stocks (13.9% & 0.70). It works well with an annual (252d) hold for the annually taxed & improves even further via the BCC. Higher level of turnover than Jim's initial screen but a lot lower than TGMark's variant (and reduces even further with an annual hold). The Yield step is set at 1/2 way between 500 & 50 with no effort to tune that parameter (so to some extent there could be some more performance if tuned further).

Another nice find! Perhaps the international version could also lean into the various key indexes in the proposed countries as a country specific S&P500/VL1700 proxy. I'll need to play with this further.

Taking TGMark's initial SI-Pro screen, using my typical 'crap' filters, doing a bit of (mostly irrelevant) simplification, stripping out the derived fields to enable direct SI-Pro screening & out-sourcing the VL1700 replacement to the S&P500...

Offhand I don't think this screen is well suited to the S&P 500, as that group is so picked over that dividend yield is lower than it might otherwise be. Many/most decent companies with decent yields are further down the list where they are more likely to be a pricing anomaly.

I took yours and did what I think (?) is a closer approximation of my original post.
After your crap filters, simple market cap top 1700 as a quickie approximation of the VL universe.
Then 50-HTD-80 and 0.4% friction as I tested it.
https://gtr1.net/2013/?~ROE_500:e20241231h63f0.4::...

A side effect is that the market cap field I used limits the backtest to 2012 and later, but that's easily fixed with the appropriate pref() if you like.

The only thing I added (because I couldn't easily do so in my owntest) is creating an ROE figure for firms with negative book value.
Positive earnings on negative book is actually a good thing on average ... it means the business needs no net assets at all to be able to earn money. So I plug in an arbitrary ROE of 100 for those firms. Losing money on negative book value is of course a bad thing.
If you're using this URL in future, note that my version ends at end 2024.

My GTR1-fu is a bit rusty, apologies for any goofs.

The VL universe and this universe behave pretty similarly. (VL .5% higher, within statistical noise)
The backtest CAGR with SIpro as above is around 2.8%/year lower than my backtest with VL once I match the date range.
The strange thing is that the VL test outperforms its 1700 universe by 2.8% in backtest, but the SIpro one lags its universe by 1.5%.

None of that is a very big deal, since the goal isn't really maximizing CAGR, but maximizing yield while merely maintaining a merely decent overall return over time.

Jim

Probably. There are a bunch of ROE-type screens in SiPro, for example this random one from an old list I had

This does not work in backtests:
FINwithRE: pref(if(trbc2.s=40!60,1,0),if(sector.s=7,1,if(incd.s=933,1,0)))

Excluding finance companies is probably not needed in this YieldROE screen, but if you want to exclude them the industry definition must be updated for the October 2024 change. Finance and RE sector in SIP is:

sector.s=7 from 19970902 to 20181028
trbc2.s=55!60 from 20181029 to 20241004 (TRBC industry codes)
trbc2.s=40!60 from 20241007 to now (GICS industry codes)

==== links ====

FINwithRE: pref(if(trbc2.s=55!60,1,0),if(sector.s=7,1,if(incd.s=933,1,0)))
FINwithRE2024: pref(if(trbc2.s=40!60,1,0),FINwithRE)
FINandREs: if(ord(1)>=26081,FINwithRE2024,FINwithRE)
see https://www.shrewdm.com/MB?pid=572382060&wholeThre...

"The previous (before SiPro's change in October) trbc2 codes for financial and real estate companies are 55 and 60.
The respective GICS codes are 40 and 60, and oddly the real estate company code did not change."
see https://www.shrewdm.com/MB?pid=587477272

==== Sector definitions ====

GICS Sector
10 Energy
15 Materials
20 Industrials
25 Consumer Discretionary
30 Consumer Staples
35 Health Care
40 Financials
45 Information Technology
50 Communication Services
55 Utilities
60 Real Estate

TRBC Sector
50 Energy
51 Basic Materials
52 Industrials
53 Consumer Cyclicals
54 Consumer Non-Cyclicals
55 Financials
56 Healthcare
57 Technology
59 Utilities
60 Real Estate
61 Institutions, Associations & Organizations
62 Government Activity
63 Academic & Educational Services


==== gtr1 counts ====

           TRBC      TRBC      GICS      GICS
trbc2.s  20181029  20241004  20241007  20250623
   0         0         0         0         0
  10         0         0       211       219
  15         0         0       230       223
  20         0         0       682       705
  25         0         0       579       572
  30         0         0       210       204
  35         0         0       754       711
  40         0         0       743       755
  45         0         0       636       627
  50       271       218       273       279
  51       231       230         0         0
  52       590       574         0         0
  53       566       600         0         0
  54       187       216         0         0
  55       949       648        93        92
  56       607       728         0         0
  57       637       922         0         0
  58        71         0         0         0
  59        96       106         0         0
  60         0       245       206       208
  63         0        35         0         0

https://gtr1.net/2013/?~sectorCount:h1::Q1End:gt0:...

since the goal isn't really maximizing CAGR, but maximizing yield while merely maintaining a merely decent overall return over time.

Oh, those dividends are costing you a lot. A lot lot.
That's a very laborious way to underperform a simple buy & (mostly) hold.

CAGR 9.7% with 21% GSD.
(Although it's better if you don't rebalance the kept picks, just the new purchases.
I usually set "fully rebalancing all liquid positions to equal weight every N holding periods" to 0 (zero) "to never rebalance positions after they are opened.")


I loaded the download daily report into Excel to cross-check the gtr1 numbers.
9.77% CAGR, 18.2% stdev, -44% Max DD Ending value $159.96

Ideally you want the stdev to be close to the CAGR. The higher it is above the CAGR the worse the performance metric is. The stdev is almost never as low as the CAGR.

----------
I have the data for a recent Russell 1000 stocks filtered by the VL 1700 symbols.
Of the top 400 by ROE, the average yield of the top 100 by yield is 3.37%.
The average yield of the top 50 by yield is 3.72%.
----------

With some Excel fiddling, assuming constant 3.7% yield, the total dividends for the entire period is $42.96.
Adding that to the ending value: $42.96 + $159.96 = $202.92 net



For comparison, I ran a backtest of SPY on testfol.io for the same dates.
Reinvesting dividends:
CAGR 14.4% volatility 16.6%, MaxDD -34%. Ending value $269.33

Taking dividends:
CAGR 12.4%, volatility & MaxDD the same Ending value $214.67


It looks like you would have been financially better off, and with a lot less effort, by investing in SPY and creating a DIY dividend by selling a few shares each year.

S&P 500 yields by year
Year      yield    Shortfall from 3.7%
2012      2.20%     1.50%
2013      1.94%     1.76%
2014      1.92%     1.78%
2015      2.11%     1.59%
2016      2.03%     1.67%
2017      1.84%     1.86%
2018      2.09%     1.61%
2019      1.83%     1.87%
2020      1.58%     2.12%
2021      1.29%     2.41%
2022      1.71%     1.99%
2023      1.50%     2.20%
2024      1.24%     2.46%

reply to: https://www.shrewdm.com/MB?pid=575095871 high dividend screen

I took yours and did what I think (?) is a closer approximation of my original post.
After your crap filters, simple market cap top 1700 as a quickie approximation of the VL universe.
Then 50-HTD-80 and 0.4% friction as I tested it.

Current picks and stats. This crap filter passes LP's which one may or may not want to do.

Rank  Ticker                 Company Name                 field6=mktcapq1.s  field7=dpsind.s  field8=sprc  [Yield]   [Equity]  [NetInc]  field10=ratio:field0,field1  field11=product:100,field10  [ROEfake]    [ROE]
  1     CLX               CLOROX COMPANY THE                    18843              4.88          122.3     0.039902     27       694               25.7037                      2570.37               100     2570.37
  2    ABBV                   ABBVIE INC                      343421.8             6.56         183.76     0.035699    1420      4195              2.954225                     295.4225              100     295.4225
  3     KMB               KIMBERLY CLARK CORP                  44756.4             5.04         130.13     0.038731    1101      2465              2.238874                     223.8874              100     223.8874
  4     DKL          DELEK LOGISTICS PARTNERS L P               2225.8             4.44          43.04     0.10316     97.4      149.1             1.530801                     153.0801              100     153.0801
  5     YOU             CLEAR SECURE INC CL A                   2379.1             0.77          26.29     0.029289    116.7     176.3             1.510711                     151.0711              100     151.0711
  6     WEN               WENDY S COMPANY THE                   3053.1              1            12.31     0.081235    130.2     191.6             1.471582                     147.1582              100     147.1582
  7     CQP           CHENIERE ENERGY PARTNERS LP              30063.2             3.28          55.76     0.058824    2052      2469              1.203216                     120.3216              100     120.3216
  8    KNTK           KINETIK HOLDINGS INC CL A                 3511               3.12          41.59     0.075018  -2549.7     228.1           -0.08946151                    -8.94615              100       100
  9    PZZA         PAPA JOHN S INTERNATIONAL INC               1393.9             1.84           49       0.037551   -431.9     78.1            -0.1808289                     -18.0829              100       100
 10     HPQ                     HP INC                         27037.9           1.1576          23.91     0.048415    -1276     2517             -1.972571                     -197.257              100       100
 11    USAC           USA COMPRESSION PARTNERS LP               3109               2.1           24.65     0.085193   -180.7     96.5            -0.5340343                     -53.4034              100       100
 12     IRM           IRON MOUNTAIN INC DELAWARE               28291.9             3.14         103.05     0.030471   -698.5     122               -0.17466                     -17.466               100       100
 13     MO                 ALTRIA GROUP INC                    92437.5             4.08         60.49001   0.067449    -3510     10212            -2.909402                     -290.94               100       100
 14     TDG               TRANSDIGM GROUP INC                  74665.9             75           1470.68    0.050997    -5671     1901            -0.3352143                     -33.5214              100       100
 15     PM          PHILIP MORRIS INTERNATIONAL INC           220251.4             5.4          184.95     0.029197   -10901     7599             -0.697092                     -69.7092              100       100
 16     TNL               TRAVEL LEISURE CO                     3544.1             2.24          49.47     0.04528     -903      418             -0.4629014                     -46.2902              100       100
 17     SMG         SCOTTS MIRACLE GRO COMPANY THE              3726.2             2.64         63.48999   0.041581   -290.1     36.1            -0.1244398                     -12.444               100       100
 18     WU            WESTERN UNION COMPANY THE                 3580.2             0.94         8.449999   0.111243    939.4     915               0.974026                     97.4026               100     97.4026
 19    AMGN                   AMGEN INC                       158678.6             9.52         272.44     0.034943    6207      5933             0.9558563                     95.58562              100     95.58562
 20     SPG            SIMON PROPERTY GROUP INC                57030.7             8.4          159.08     0.052804   2564.9    2052.9            0.8003821                     80.03821              100     80.03821
 21    APAM   ARTISAN PARTNERS ASSET MANAGEMENT INC CL A        2967.3             3.55          42.82     0.082905    356.5     261.4            0.7332398                     73.32398              100     73.32398
 22     RRR           RED ROCK RESORTS INC CL A                 2804.9              2            50.93     0.03927     247.1     156              0.6313233                     63.13233              100     63.13233
 23     RHP     RYMAN HOSPITALITY PROPERTIES INC REIT           5941.1             4.6           100.9     0.04559     531.5     291.5            0.5484478                     54.84478              100     54.84478
 24     KTB               KONTOOR BRANDS INC                    4303.1             2.08           64.6     0.032198    426.7     229.2            0.5371455                     53.71455              100     53.71455
 25     NSP                 INSPERITY INC                       3096.3             2.4           60.01     0.039993    119        63              0.5294118                     52.94118              100     52.94118
 26     AMT            AMERICAN TOWER CORP REIT                91683.8             6.48         221.63     0.029238   3534.8    1826.3            0.5166629                     51.66629              100     51.66629
 27     PEP                   PEPSICO INC                     205370.9             5.69         129.09     0.044078    18389     9370             0.5095438                     50.95438              100     50.95438
 28     LAZ                   LAZARD INC                        4487.1              2            45.33     0.044121    603       304.5            0.5049751                     50.49751              100     50.49751
 29     OUT               OUTFRONT MEDIA INC                    2964.2             1.2           15.87     0.075614    566.9     264.8            0.4671018                     46.71017              100     46.71017
 30     BKE                 BUCKLE INC THE                      1929.2             3.9            44.4     0.087838    445.3     195.8            0.4397036                     43.97036              100     43.97036
 31    HESM             HESS MIDSTREAM LP CL A                  4448.5           2.8392          38.03     0.074657    601.3     250.1            0.4159322                     41.59322              100     41.59322
 32     KO              COCA COLA COMPANY THE                 287112.7             2.04         69.73999   0.029252    26202     10784            0.4115716                     41.15716              100     41.15716
 33    LAMR         LAMAR ADVERTISING COMPANY CL A             12466.4             6.2          120.92     0.051274    1030      422.4            0.4100971                     41.00971              100     41.00971
 34     ENR             ENERGIZER HOLDINGS INC                  2310.7             1.2           20.31     0.059084    133.9     54.4             0.4062734                     40.62733              100     40.62733
 35     WES         WESTERN MIDSTREAM PARTNERS LP              15510.3             3.64          38.69     0.094081   3183.4    1279.3             0.401866                     40.1866               100     40.1866
 36     PSA                 PUBLIC STORAGE                     52421.3             12           294.76     0.040711   5216.3    1970.9            0.3778349                     37.78349              100     37.78349
 37     UPS         UNITED PARCEL SERVICE INC CL B            101949.1             6.56          100.4     0.065339    15660     5856             0.3739464                     37.39464              100     37.39464
 38     AES                  THE AES CORP                       8228.8           0.7038          10.15     0.06934     3468      1293             0.3728374                     37.28374              100     37.28374
 39     HAS                   HASBRO INC                        8413.9             2.8            70.6     0.03966    1169.9     426              0.3641337                     36.41337              100     36.41337
 40     HSY               THE HERSHEY COMPANY                  33110.3             5.48         173.13     0.031653   4684.9     1648             0.3517685                     35.17685              100     35.17685
 41     MC              MOELIS & COMPANY CL A                   4977.3             2.6           59.53     0.043675    484.5     169.7             0.350258                     35.0258               100     35.0258
 42     OMC               OMNICOM GROUP INC                    16406.2             2.8            71.7     0.039052   4373.2    1449.7            0.3314964                     33.14964              100     33.14964
 43     MTN                VAIL RESORTS INC                     5785.6             8.88         158.42     0.056054    895.4     290.1            0.3239893                     32.39893              100     32.39893
 44    MPLX                     MPLX LP                        53426.2            3.826          51.13     0.074829    13838     4438             0.3207111                     32.07111              100     32.07111
 45     BBY                 BEST BUY CO INC                    15984.7             3.8           66.37     0.057255    2763      883              0.3195802                     31.95802              100     31.95802
 46    SLVM                  SYLVAMO CORP                       2971.5             1.8           50.77     0.035454    908       286               0.314978                     31.4978               100     31.4978
 47     BMY          BRISTOL MYERS SQUIBB COMPANY             118278.9             2.48          46.92     0.052856    17389     5419             0.3116338                     31.16338              100     31.16338
 48    GILD               GILEAD SCIENCES INC                 128564.7             3.16         106.19     0.029758    19162     5965             0.3112932                     31.12932              100     31.12932
 49     DDS               DILLARD S INC CL A                    6087.4             26           403.31     0.064467   1857.9     577.3            0.3107271                     31.07272              100     31.07272
 50     CNS               COHEN & STEERS INC                    4328.1             2.48          76.01     0.032627    507.7     157              0.3092377                     30.92377              100     30.92377

This does not work in backtests:
FINwithRE: pref(if(trbc2.s=40!60,1,0),if(sector.s=7,1,if(incd.s=933,1,0)))

Yep thanks for the reminder. Back when that happened I looked at your post, excellent treatment of that transition.
Not remembering why I stuck with the above formulation.
I think it didn't materially affect the backtests, and it works the same for current picks.

I'll re-check, since I make a lot of mistakes and misremember things.


Mark

Oh, those dividends are costing you a lot. A lot lot.
That's a very laborious way to underperform a simple buy & (mostly) hold.

Well, it depends.

If the backtest were indicative, always a dubious assumption, it beat the S&P 500 by 4.9%/year 2000-2024. The lift was all in the first half, but the absolute returns have been fine. To generalize, that breaks down roughly into 13%/year beating the market by ~13% 2000-2009, then 13%/year tracking the market 2010-2024. That's a fine result, if it were representative of the future results. Admittedly a big "if".

But the main point of the thread is not about maximizing CAGR.

The notion is this: if the principal purpose of a particular portoflio is to fund some ongoing spending, you can do that two ways. Either sell some stock periodically, or take dividends, or some mix of the two.

Generally I am in favour of selling stock periodically. You get the amount of income you choose rather than always too much or too little, you can choose your selling dates, and you can hold all the best quality firms you can pick. This is emphasized by my personal and unusual tax situation, which is a very low tax on capital gains and a very high tax on dividends, the difference being about 30 cents on the pre-tax dollar.

But...if one imagines that a long bear market is a possibility, the capital value of your portfolio might be flat or in drawdown for quite a number of years. Note that the S&P 500 had a negative nominal total return in the first decade of the century, and after inflation -3.3%/year compounded. Without sounding like a permabear, I think that the prospects for the broad US market are extremely poor right now, perhaps no real total return from the S&P for the average ending point 5-10 years out. I estimate the trend earnings yield is about the same as it was at the start of February 2000 or Hallowe'en 1998.

If there is a long bear, a dividend portfolio has its charms: dividends typically fall VERY much less than stock prices in any economic downturn. You don't end up selling stock over and over at low valuation levels. As the stock market falls, most of the dividend cash amount remains and the dividend yields on offer rise. Look at the series of numbers up thread of the estimated rolling year cash dividends from the screen: there is essentially no dip in the credit crunch or pandemic. Ignoring the weird spike in April 2020 which is almost certainly a data error I haven't bothered to find, the worst drawdown of a rolling year's income was -12% from the highest prior rolling year. The same metric of a plan selling a constant fraction of your SPY each month would have had a rolling-year drawdown of -36% in the tech bear (worse after inflation), and the drawdown from rolling year peak would have lasted six years. Then another rolling-year drawdown of -36% in the credit crunch.

A dividend-oriented portofolio will generally not do as well as an intelligently constructed "do your best" portfolio measured by CAGR. But it may still be market beating (or at least tracking), and may do a lot better on some other metrics.

Jim

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