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红利攻略:高股息的常见误解与再认知

Dividend Strategy: Common Misconceptions and Reunderstanding of High Dividends

策略曉説 ·  04/18/2022 16:50

Authors: Zhang Junxiao, Wang Chengjin,

Source: strategy theory

When it comes to dividend strategies or high dividends, the market usually labels them as "bear market defense", "debt-like assets", "low valuation" and so on. In this regard, Guosheng strategy Zhang Junxiao pointed out that high dividend is not a pure defense strategy, is a short-term asset, and undervalued style is "similar but different, volatility is lower."

The return of the king of the 2022 dividend index has reversed the trend so far this year and achieved a positive income of more than 8%, outperforming the Wande all-An index by 25 percentage points. When it comes to dividend strategies or high dividends, the market usually labels them as "bear market defense", "debt-like assets" and "low valuations". Is it true that these habitual impressions are true? How can we play with higher dividends?

In this dividend strategy, we will focus on three problems: first, the cognitive misunderstanding and pricing logic of the high dividend strategy; second, the timing of the dividend index from the top down; and third, how to strengthen the returns of the high dividend strategy from the perspective of stock selection.

Core viewpoints

(1) A few common one-sided misunderstandings about high dividends:

First, the long-term performance of the dividend index is average. -- the investment value will be highlighted after considering the dividend reinvestment. The long-term performance of the dividend index looks mediocre, but if the dividend reinvestment income is taken into account, it can outperform most broad-based indices; and compared with other indexes, the volatility of the dividend index is lower, the pullback is smaller, and the risk-return ratio is more attractive.

Second, defend against or attack? High dividends are not purely defensive strategies. The impression of bear market defense comes more from the low valuation + low volatility attribute of high dividend assets, but for the dominance of high dividend, the bear market environment is neither sufficient nor necessary. In bull market and shock market, high dividend assets can also get excess returns.

Third, pro-periodic or counter-periodic? High dividend assets are pro-cyclical to a certain extent. High dividend strategy is not a typical economic downside hedging strategy. on the contrary, most high dividend assets have certain pro-cyclicality, cyclical manufacturing and financial real estate have always been the "core circle" of high dividend. The industry attribute of high dividend assets is more pro-cyclical.

Fourth, is a high dividend a low valuation? -- similar but different, with lower volatility. For a long time, there has been a significant correlation between high dividend and undervalued style trend, and the correlation coefficient has even reached 80%, 90%. However, compared with undervalued style, the trend of high dividend is more robust, and the long-term low volatility attribute is prominent.

Fifth, is high dividend a debt asset? Short-term assets may be more accurate. Although high dividends are long-term commonalities, the periodic outperformance of high dividends is more due to their industry attributes, while the valuation basis of such assets is more from discounted short-term cash flow and has obvious short-term properties. so the upward period of interest rates is actually more beneficial.

(2) when will the high dividend strategy win?

Since 2010, there have been 10 stages of high dividend outperformance. Combined with a historical review, we can roughly sort out the following conclusions:

First of all, for the logic of high dividend strategy, two points should be made clear: first, high dividend assets are essentially a kind of short-term assets, which benefit more in the period of rising interest rates and the dominant stage of low valuation; second, the continuous dominance of high dividend strategy is inseparable from the structural market of the weighted industry itself, whether it is the macro environment, performance level, or money-making effect, in fact, it all points to the phased advantages of financial real estate or periodic manufacturing.

Secondly, in order to grasp the dominant market of high dividend, we should focus on the superposition of the following types of environment: 1) at the macro level, focus on two types of environment: one is that PPI and PMI go up at the same time, and the monetary conditions have been tightened; the other is that PPI and PMI go down at the same time, and the monetary conditions tend to be looser. 2) at the performance level, focus on two types of structures: one is the overall downward turn of the full A profit cycle, and the other is the upward profit cycle but relatively dominant financial real estate / cycle manufacturing. 3) in terms of market performance, we should pay attention to two kinds of situations: one is the sharp correction of the market, the characteristic of "bear market" is prominent; the other is the dominant undervalued style in the upward period of interest rates.

Finally, from a long-term perspective, the high dividend investment value of A shares is worth paying attention to: first, the thickening effect of dividend reinvestment on long-term investment returns can not be ignored; second, the low withdrawal and low volatility of high dividend assets also improve their long-term holding performance-to-price ratio.

(3) at the current stage, how to choose the best dividend strategy?

"High dividend + fundamental improvement" may be a better solution. In view of historical experience, the phased dominance of the high dividend strategy is inseparable from the style dominance of the high dividend industry, so the stock selection criteria superimposed with high dividends and fundamentals are expected to help us to outperform the market for a long time while giving consideration to low volatility and low pullback. The return test results show that the "high dividend + fundamental improvement" combination has consistently outperformed the CSI dividend index in recent years, and withdrew less than the individual fundamental improvement portfolio. Among them, the "high dividend + fundamental improvement" 20 combination earned 14.81% from 2010 to this year, higher than 3.50% of the CSI dividend index. (includes a list of 20 combinations of high dividend + fundamental improvement)

The following is the body:

1. Some common misunderstandings about high dividends

1.1 long-term average performance of dividend index? -- highlight the investment value after considering the dividend reinvestment

The long-term performance of the dividend index looks mediocre, but if the dividend reinvestment income is taken into account, the dividend index has been able to outperform most indices in the past decade; and compared with other broad-based indices, the dividend index has lower volatility, less pullback, and more attractive risk-return ratio (Sharp ratio).

From a long-term perspective, the dividend strategy considering dividend reinvestment income outperforms most broad-based indices. Since 2010, if we observe the CSI dividend index alone, the long-term advantage is not obvious, but if we consider the dividend reinvestment, the excess return is already more significant. Since 2011, the cumulative returns of CSI dividend, CSI and CSI 300 have reached 215.5%, 124.2% and 119.0%, respectively. From the perspective of the separation of capital gains and dividend reinvestment, looking back roughly from an annualized perspective, the annualized rate of return of dividend reinvestment is about 4.7%, which is even higher than the annualized rate of return of 3.1% of capital gains. Dividend reinvestment is an important support for high dividend strategies to obtain long-term excess returns.

Secondly, the advantage of low withdrawal and low volatility of the high dividend strategy increases the long-term allocation value, and the Sharpe ratio is relatively dominant. From historical experience, taking into account the earnings volatility and the maximum pullback, compared with the earnings volatility and the maximum pullback ratio of the CSI dividend and the A-share core index since 2010, the CSI dividend index is dominant. While earning income, it maintains a low volatility, and the maximum pullback since 2010 and 2016 is the smallest, reflecting the long-term comparative advantages of low volatility and low pullback of the high dividend strategy. The Sharp ratio of long-term performance is considerable.

1.2 defend against or attack? High dividend is not a pure defense strategy.

High dividend assets have always been labeled as defensive attributes, and their "stable high dividend + high margin of safety" is the safe haven of funds during the bear market. Starting from the definition of high dividend assets, on the one hand, the stable high dividend hedges the loss of capital gains with the "just exchange" attribute to a certain extent, on the other hand, the relatively low valuation and low volatility attributes also give the high dividend strategy a relatively low potential pullback range, so it logically gives the high dividend strategy a strong "defensive attribute".

However, the high dividend strategy is not a simple defense strategy. In addition to the characteristics of low volatility and low pullback during the bear market, the dividend index can also obtain excess returns in many other market environments. Combined with historical experience, during the period from 2015 to 2016, 2018 and the recent sharp market pullback, the CSI dividend index has indeed achieved relatively obvious excess returns, and the "defense" attribute is obvious. In addition, however, excessive dividend assets outperformed in 2009, 2011, 2014, 2017, 2020 and 2021, and the duration is also worth participating. In addition, in the pattern of shock and decline in 2012, the high dividend strategy is basically ineffective, so the bear market environment is neither sufficient nor necessary for the high dividend strategy. High dividend assets can also obtain excess returns in bull markets and volatile markets.

1.3 pro-cyclical or counter-cyclical? -- High dividend assets are pro-cyclical to a certain extent

In the composition of the dividend index, cyclical manufacturing is the largest, accounting for more than 50%, followed by financial and real estate. Taking the constituent stocks of the CSI dividend index as the sample, the so-called high dividend targets have long been concentrated in the cyclical manufacturing sector, and the proportion once reached 77% in 2008. However, high dividend assets are not static. With the expansion and enrichment of A-shares, the proportion of cyclical manufacturing shows a trend to decline, while the proportion of financial and real estate has steadily increased from 7% to 25%. On the other hand, the proportion of consumer medicine and technology growth sector is relatively stable and long-term low. Sinking to the industry level, early high dividend assets were mostly concentrated in transportation, iron and steel, coal, chemical, automotive and public utilities and other industries, and then the weight of bank and land property rights gradually rose, while the weights of transportation, chemical industry and iron and steel gradually decreased. By the end of 2021, the top five weighted sectors of China Securities dividend are real estate, banking, coal, transportation and automobile.

Therefore, the high dividend strategy is not a typical economic downside hedging strategy, on the contrary, most high dividend assets have a certain pro-cyclical nature. To sum up, although the industry distribution structure of high dividend assets has been adjusted, cyclical manufacturing and financial real estate have always been the "core circle" of high dividends, and the industry attributes of high dividend assets are more pro-cyclical, and the so-called countercyclical inherent impression is more due to the fact that high dividends are more defensive in the bear market driven by the economic downturn.

1.4 is a high dividend a low valuation? Similar but different, with lower volatility

For a long time, there has been a very high correlation between high dividend and undervalued style. Compared with the relative earnings trends of low price-to-earnings ratio, low price-to-book ratio and CSI dividend, the correlation between the three trends has been more significant. Since 2010, the correlation between low PE, low PB style excess earnings and CSI dividend excess returns has reached 90.8% and 81.8%, respectively. In fact, this characteristic can be seen in the stock selection criteria of CSI dividends, because "dividend ratio = dividend / closing price per share" can be further processed into "dividend ratio = dividend ratio / price-earnings ratio". Relatively low valuation has become a natural attribute of high dividend assets, so the core of high dividend outperformance reflects the market's increased holdings of low-valued assets to a certain extent.

However, although the high dividend and the undervalued are similar but different, the low volatility attribute of the high dividend is more prominent. According to historical experience, volatility is the main difference between high dividend and undervalued styles. In the normalization stage, the correlation between the two is basically more than 90%, while the phased correlation decline is generally due to the excess fluctuation of undervalued style. At the same time, compared with the high volatility of high / undervalued style switching, the trend of high dividend is more robust, and the trend of undervaluation is dominant, the high dividend itself is generally difficult to outperform the low valuation, but the undervaluation obviously loses the stage. the relative return of high dividend is more resistant, and the attribute of long-term low volatility is highlighted.

1.5 is high dividend a debt asset? Short-term assets may be more accurate

In theory, stable high dividends generate interest directly against benchmark bonds, and the downward interest rate should increase the performance-to-price ratio of dividend asset allocation. The judgment of the nature of debt is mainly due to the fact that high dividend assets can provide stable cash dividends and stable interest returns directly to benchmark bond assets, so in the downward stage of interest rate trend, high dividend assets with high "interest" should also be more attractive. in the interest rate upward stage, the performance-to-price ratio of high-dividend assets should also be obviously weaker, while the bond performance-to-price ratio should be higher.

However, the probability of high dividend winning in the interest rate downward period is not high, on the contrary, the upward interest rate is more conducive to the high dividend strategy to win. Combined with historical experience, the relationship between the excess return of high dividend strategy and long-end interest rate is not high, and the high dividend strategy is dominant in 2009, 2012-2013, 2016, 2017 and 2020, but the long-end interest rate is in the upward stage, so the cognition of debt based on dividend interest is also a little one-sided.

We believe that it may be more accurate to regard high dividend assets as short-term assets than the definition of debt-like assets. Although high dividend is the long-term commonness of high dividend assets, the periodic outperformance of high dividend market is more due to its industry attributes, that is, the industry characteristics of cyclical manufacturing and financial real estate, and this kind of assets, in addition to large fluctuations in the economy, the valuation basis is more from the discounted short-term cash flow, which has obvious short-term attributes compared with technological growth assets, so the upward period of interest rates is actually more beneficial. According to the experience since 2010, no matter the income or the winning rate, whether the absolute level or the relative level, the performance of high dividend in the interest rate upward period is better than that in the interest rate downside period.

Second, when will the high dividend strategy win?

How to define the stage of high dividend outperformance? Taking the CSI dividend index as a reference, combining absolute and relative returns, and taking into account the duration of the interval (not less than one month), the range in which the CSI rose and outperformed Wande A was defined as the stage of high dividend outperformance, so there are roughly 10 segments in this range since 2010:

Throughout the previous outperformance stages of high dividends, there are roughly the following characteristics:

First, in style, it is generally accompanied by financial real estate and cyclical manufacturing dominant structural market. Compared with the outperformance stage of many rounds of high dividends, the market style is generally biased towards financial real estate or cyclical manufacturing, the growth of science and technology is generally poor, and consumer medicine is relatively dominant only in February-April 2021. At the same time, combined with the distribution of dominant industries in the stage, the relative dominance of banks, real estate, coal, iron and steel and other high dividend industries is an important support for the relative dominance of the current high dividend strategy. Therefore, whether the market style is conducive to financial real estate or cycle manufacturing will be an important clue to grasp the high dividend market.

Second, from the perspective of performance, most of them are in the profit downward period or the profit upward period dominated by "financial real estate + cycle manufacturing". Combined with the all-A performance growth rate, the performance cycle can be divided into profit upward period / downward period, and combined with the performance growth rate estimation of different sectors, the performance structure can also be included in the observation. Historical experience shows that the high dividend outperformance stage often exists in two kinds of environments: one is that when the all-A performance enters the profit downward stage, the market expectation for high growth weakens, and the relatively stable assets with high dividends begin to receive attention; second, when the all-A performance is in the upward stage, and the financial real estate or cycle manufacturing shows a higher performance growth rate, which leads to the pursuit of high growth and high dividend assets.

Third, in the macro environment, "PPI-PMI + broad currency" and "PPI-PMI ditto + tight currency" are more conducive to the dominance of high dividends. From the perspective of PMI-PPI and currency-credit, most outperformance stages of high dividends are often faced with two types of environmental combinations, namely, "PPI year-on-year downside + PMI downside + broad currency" or "PPI year-on-year upside + PMI uplink + tight currency". In fact, behind the two combinations also roughly correspond to two kinds of relatively dominant macro environments of financial real estate and cyclical manufacturing: when PPI goes down synchronously with PMI, it is actually in an obvious "quasi-recession" stage. In fact, the corresponding broad currency has already reflected the signal that the policy underpins and protects the economy, so the financial real estate will be the first to reflect the expectation that the economy will bottom out and stabilize, and then catalyze the relatively dominant main line style of the financial real estate market. When PPI rises synchronously with PMI, it means that the economy continues to improve, but the rise in volume and price also means the appearance of inflationary pressure, and the marginal tightening of superimposed currency also means that policy begins to deal with potential inflation, at this time the technology sector will take the lead in the pressure, the consumer sector without the support of CPI uplink will be subject to cost pressure, while upstream resources will fully benefit from the logic of bulk price increases, which will lead to cyclical manufacturing of the market main line.

To sum up, combined with the historical experience of high dividend strategy, the following conclusions can be drawn:

First of all, for the logic of high dividend strategy, two points should be made clear: first, high dividend assets are essentially a kind of short-term assets, which benefit more in the period of rising interest rates and the dominant stage of low valuation; second, the continuous dominance of high dividend strategy is inseparable from the structural market of the weighted industry itself, whether it is the macro environment, performance level, or money-making effect, in fact, it all points to the phased advantages of financial real estate or periodic manufacturing.

Secondly, in order to grasp the dominant market of high dividend, we should focus on the superposition of the following types of environment: 1) at the macro level, focus on two types of environment: one is that PPI and PMI go up at the same time, and the monetary conditions have been tightened; the other is that PPI and PMI go down at the same time, and the monetary conditions tend to be looser. 2) at the performance level, focus on two types of structures: one is the overall downward turn of the full A profit cycle, and the other is the upward profit cycle but relatively dominant financial real estate / cycle manufacturing. 3) in terms of market performance, we should pay attention to two kinds of situations: one is the sharp correction of the market, the characteristic of "bear market" is prominent; the other is the dominant undervalued style in the upward period of interest rates.

Finally, from a long-term perspective, the high dividend investment value of A shares is worth paying attention to: first, the thickening effect of dividend reinvestment on long-term investment returns can not be ignored; second, the low withdrawal and low volatility of high dividend assets also improve their long-term holding performance-to-price ratio.

Third, at the current stage, how to choose the best dividend strategy?

At the current stage, we recommend the stock selection logic of "high dividend + expected improvement" for dividend strategy. In view of historical experience, the phased dominance of the high dividend strategy is inseparable from the style dominance of the high dividend industry, so the stock selection criteria superimposed with high dividends and fundamentals are expected to help us to outperform the market for a long time while giving consideration to low volatility and low pullback.

The definition of "high dividend + expected improvement" combination:

1) for the improvement of fundamental expectations, we focus on two dimensions, "performance exceeding expectations" and "revision of analysts' earnings forecasts". First, for better-than-expected performance, in the previous report, "Building a better-than-expected portfolio: stock selection Strategy based on performance + Volume Price" (20210906), we describe the company's performance exceeding expectations based on historical performance and volume-price signals. the definition of exceeding expectations is used here. As one of the screening conditions for the improvement of the company's fundamentals. Second, for the revision of analysts' earnings forecasts, in the early report "how can analysts help us predict the economy & beat the market?" "(20220403), we point out that the revised analyst earnings Forecast (MAF) can reflect the marginal changes in corporate earnings expectations. In short, if an analyst raises (or downgrades) the company's earnings forecast at some point, there is reason to believe that the analyst has captured new information affecting the company's long-term performance. the extent of the upward (or downward) increase (or downgrade) can reflect the extent of marginal changes in fundamental expectations. Therefore, we choose the MAF index as another screening condition for fundamental improvement, that is, the number of earnings cuts made by analysts in this period is 0, and the proportion of earnings increases is more than 90%. To sum up, the construction of fundamental improvement is mainly based on the condition of "performance exceeding expectations", supplemented by the condition of "revision of analysts' earnings forecasts", and when the number of stocks selected for "performance exceeding expectations" is small, the stocks selected by the "analyst earnings Forecast revision" are used for replacement.

2) for high dividend screening, we choose companies with a dividend yield of more than 3% in the past 12 months.

3) for the constituent stocks of the portfolio, the first 20 or 40 stocks with high dividend yield are selected at the beginning of each period to form the current investment portfolio, which are defined as "fundamental improvement + high dividend" 20 combination and "fundamental improvement + high dividend" 40 combination respectively.

The return test results show that the "high dividend + fundamental improvement" combination has consistently outperformed the CSI dividend index in recent years, and the withdrawal is smaller than that of the separate fundamental improvement portfolio. No matter in terms of annual or monthly earnings, the combination of "fundamental improvement + high dividend" is significantly better than the CSI dividend index. Among them, the "high dividend + fundamental improvement" 20 combination has an annual income of 14.81% from 2010 to this year, which is higher than 3.50% of the CSI dividend index. In addition, compared with the simple fundamental stock selection method, the withdrawal of the "high dividend + fundamental improvement" portfolio is smaller, and the pullback since February 2016 can be controlled within-24%. The "performance better than expected" portfolio can withdraw by-34%, and the "analyst earnings Forecast revision" portfolio can withdraw by-30%.

Risk hint

1. Higher-than-expected fluctuation of macro-economy; 2. Lack of historical experience comparability; 3. Statistical model error.

Edit / irisz

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