Dividend yield as a superior investment strategy

Abstract

Individual investors and professional fund managers who deploy capital into equity markets are looking to achieve investment returns that outperform the general market. In order to achieve this, the ability to identify and implement strategies and trading rules that are consistently able to outperform the market is critical. It is against this backdrop that this study will attempt to determine whether a trading strategy based on dividend yield can be used to outperform the general market in South Africa. Specifically, this study proposes to test a dividend yield strategy to create portfolios based on historical data on the JSE, and test whether these portfolios have outperformed the JSE Top 40 Index over the period of the study between 2004 and 2012, after adjusting for risk and taxes. This study will also further test whether high yield portfolios outperform low yield portfolios over the same period on the JSE. These trading strategies have proven to be successful in other markets by Dimson et al. (2011) and Visscher and Filbeck, (2003), and this study aims to investigate whether the same holds in South Africa.