I made a post little over 3 years ago over in the Dividend subreddit about trying out a quantitative approach to dividend investing. I just wanted to put an update since that post. I have an equities screen that filters out companies based on my criteria, and every month I rotate/rebalance my portfolio based on that list and have gotten pretty promising results.
What kind of results?
Over last 3 years (not including contributions):
| - | 3yr Annualized Returns | 3yr Cumulative Returns |
|---|---|---|
| Dividend Portfolio | +11.20% | +37.50% |
| S&P500 | +8.06% | +26.20% |
So why post in r/investing instead?
- Given the general favorability forwards growth, I do want to know different opinions on this approach.
- Want to see how this can be improved or what I may be missing in this strategy?
I do also want to preface, I have 2 other portfolios what I contribute to, 1 that is purely in VOO, and 1 that is all growth, risk tolerant, and Mag 7 stocks. I am also an advocate that each portfolio should have a purpose and goal which I'll explain this one's below...
So what is the strategy?
- Current Market Cap (at time of rotation): >20 Billion
- Dividend Yield (at time of rotation): >3.5%
- P/E Ratio (at time of rotation): <100
- Dividend Payout Ratio: <55
- 1-Year Total Return (at time of rotation): >= 0
And run this filter at the beginning of every month, kicking out companies that no longer make the cut, and adding new ones that did. As well as backtest this over last 5yr, 10yr, 25yr periods to compare against the S&P500.
For the most part, the portfolio dividend yield come to be ~4%, and vast majority of the dividends I get are qualified dividends, despite the monthly rotation. So taxes on the dividends are kept to a minimum.
So the goal of this? This is my to attempt to out perform the market over the long run, with less risk, and with least effort as possible. The eventuality is withdrawing dividends to supplement my income.
A quick lookup puts VOO 10yr sharpe ratio at 0.74 and average annualized return of 12.33%.
Backtesting puts this strategy has its 10yr sharpe ratio at 0.95, and average annualized return of 18.9%.
While past performance does not equate to future returns, I do like this strategy and do plan on continuing for at least another 7 years, and may do a 5yr check in, but has been a fruitful 3 years so far.
Some caveats I do recognize tho, but still think it makes the effort worth it:
Half the time I do not know what companies I am buying. It is all companies that fit the criteria at the time, regardless of how they are actually doing. For example, if I did this the 15 years ago I would have had WaMu before they went bust. More recently, it had a regional bank during the bank failures.
I also am forced to sell stock on top of getting dividends, which so far the performance still makes up for. On the flip side, I also would sell losers if the filter says so, so theres that.
I also miss out on major tech bull runs like in 2023. Also on the flip side, I was still positive in 2022 with the constant rate hikes.
Submitted May 25, 2024 at 11:20PM by TKLun https://ift.tt/jbZlc76
