This article is compiled from one of the series of reports "what to buy overseas" by Changjiang Securities.High dividend strategy for Hong Kong stocks: both offensive and defensive "

I. one of the investment directions of Hong Kong stocks: high dividend yield

Compared with the major equity markets in the world, the dividend yield of Hong Kong stocks is generally higher, which is also one of the answers of Cheung Kong Securities to "what to buy overseas".

According to historical data, the average dividend yield of the Hang Seng Index is 3.32%, and the range of standard deviation of the average dividend yield is 2.73%, plus or minus double the standard deviation, which is only lower than that of the United Kingdom and France, and significantly higher than the US market.

Since dividend yield = dividend payout ratio / PE, low valuation is the main factor for high dividend of Hong Kong stocks.

Compared with the global major equity markets, the average dividend payout ratio of the Hang Seng Index is only moderate.

From a historical point of view, Hong Kong stock dividends mainly depend on profits. As the performance of listed companies improved in 2012-2018, the compound average growth rate of total dividends of Hang Seng Index components reached 10.77 per cent. As of 2018, dividend companies accounted for 62% of the Hang Seng Index for three consecutive years.

However, what surprised Cheung Kong Securities was that the Hang Seng High dividend yield Index was similar to the Hang Seng Index and did not achieve significant excess returns (50 components of the Hang Seng High dividend yield Index came from the top 50 dividend yields of the Hang Seng large and medium-sized stocks).

For this problem, Changjiang Securities believes that it is mainly affected by the high coincidence degree of components, the defect of historical dividend yield and so on. If the overlap of the two indices reaches 36%, the overlapping stock market value accounts for 43% of the total market capitalization of the Hang Seng Index.

Second, the construction of high dividend portfolio: based on three different perspectives

Can we modify the high dividend strategy to make it both offensive and defensive, with more stable excess returns and suitable for different market conditions?

Changjiang Securities adopts 3.Construct high dividend portfolio from two perspectives: historical high dividend yield based on historical data, reporting period dividend yield based on earnings data, and expected dividend yield based on future data.

Through the simple screening of the Hang Seng Composite Index through high ROE, earnings stability (ROE for x consecutive years > 10%) and the proportion of retained earnings to the total market capitalization, the result is that the dividend yield is significantly higher than the original level.SoSimple dividend yield ranking can not achieve high dividend strategy very well.。

Historical construction of high dividend yield portfolio:Using the dividend yield of the past 12 months, supplemented by ROE, dividend payment rate, profit growth, ROE stability, retained earnings, cash assets and other indicators as the screening conditions of high dividend companies.

Through sensitivity analysis (sensitivity of factor changes on portfolio yield), Changjiang Securities found that when the upper limit of dividend yield is set at 5%, the portfolio yield is higher, and after anchoring the upper limit of dividend yield, it is found that when the lower limit of profit growth is set at 2.8% and the lower limit of ROE is set at 11.7%, the monthly average return of the portfolio is higher (0.74%).

According to the above screening conditions, Changjiang Securities finally obtained a combination of historical dividend yields that outperformed the Hang Seng Index. When the trading volume is below 10 million, the historical dividend yield portfolio rose by 117.2% between 2010-4-1 and 2019-5-31, while the Hang Seng Index rose by only 26.7% over the same period. Under the higher liquidity requirements, the historical dividend yield portfolio has even improved.

Construction of high dividend portfolio during the reporting period:The portfolio is constructed based on more timely information. After the annual report is published, the reporting period dividend yield is used to replace the historical dividend yield (TTM) for portfolio screening. When the dividend yield is capped at 5%, the portfolio yield is higher.

Similarly, when the trading volume is below 10 million, the dividend yield portfolio for the reporting period rose by 146.9% between 2010-4-1 and 2019-5-31. Therefore, the dividend yield combination in the reporting period significantly outperformed the Hang Seng Index, at the same time, it also improved relative to the historical dividend yield combination.

Forecast high dividend portfolio construction:Furthermore, the thinking of Changjiang Securities is more positive, trying to grasp the companies that are expected to achieve high dividends in the future, and to build a high dividend portfolio by predicting the dividend yield.

The specific way is to take the average dividend payout rate of the successive dividend stocks in the past three years as the forecast dividend payout rate, use the WIND consensus expectation EPS as the expected EPS, multiply the two to get the expected dividend, and then divide by the stock price to get the forecast dividend yield.

The results show that during the period from 2010-4-1 to 2019-5-31, the expected dividend yield portfolio rose or decreased by as much as 155.5%, and the excess return was higher than the historical dividend yield combination (117.2%) or the reporting period dividend yield combination (146.9%), and the excess return was more significant. On a monthly basis, it is predicted that the winning rate of the high dividend yield combination against the Hang Seng Index since 2010 is 54.95%. In terms of the year, the winning rate of the combination is 77.78%, only running or losing the Hang Seng Index in 2010 and 2012.

It is obvious that from the perspective of total income, the above three combinations have very significant excess returns.And on a monthly basis, the winning rates of the high dividend portfolio, the predicted high dividend portfolio and the historically high dividend combination in the reporting period since 2010 are 63.96%, 54.95% and 54.05%, respectively.

Finally, Changjiang Securities also found that the high dividend portfolio in the reporting period is more suitable for the falling month of the Hang Seng Index, but very unsuitable for the last rising month, and the predicted high dividend portfolio is more suitable for the rising month of the Hang Seng Index. The historical high dividend combination is not the best choice in both cases.

The latest screening results of three combinations are attached.