Dividend-paying stocks outperformed non-dividend payers, while higher yielding companies generally provided higher risk-adjusted returns, according to a study by exchange-traded funds sponsor Global X Funds examining the relative volatility of high dividend-paying stocks over time.
The firm’s new research paper, “High Dividends: Myth vs Reality,” provides new research on volatility and addresses common misconceptions surrounding high dividend-paying stocks.
According to the study, when tested against a number of risk factors, dividend-paying stocks repeatedly outperformed non-dividend payers over a time period of ten years. The study also examines relative performance of very high dividend-paying stocks, in the 10 per cent to 17 per cent range, and showed this group often outperformed relative to equities with lower dividends.
“Conventional wisdom holds that higher dividends mean lower performance, but our research shows the exact opposite,” says Bruno del Ama, chief executive of Global X Funds. “We wanted to tackle the issue of dividends head on, and demonstrate to investors that high-yielding global dividend stocks may be an important part of a portfolio.”
The study found that, even in bear markets, dividend stocks proved to be less volatile than non-dividend payers. This lower risk factor, combined with the historical outperformance of high dividend-payers and limited investment options for these companies, guided Global X in the creation of its SuperDividend ETF (SDIV), which launched in June 2011.
The fund currently has more than USD350m in assets. SDIV’s fund basket consists of 100 equal-weighted companies that rank amongst the highest dividend-paying equity securities across global markets. IndexUniverse named SDIV as one of its Top five ETF picks for 2013.
“Given this sustained low-interest rate environment we find ourselves in, investors need to find creative ways to obtain yield across new asset classes. Our SuperDividend ETF provides investors with access to a class of dividend payers that have been traditionally untapped,” says del Ama.
