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Do High-dividend Stock ETFs Beat the Market?

Posted in Fundamental Valuation

A subscriber asked about current evidence that high-dividend stocks outperform the market. To investigate, from a practical perspective, we compare performances of five high-dividend stock exchange-traded funds (ETFs) with relatively long histories to that of SPDR S&P 500 (SPY) as a proxy for the U.S. stock market. The five high-dividend stock ETFs are:

iShares Select Dividend (DVY), with inception November 2003.
PowerShares Dividend Achievers ETF (PFM), with inception September 2005.
SPDR S&P Dividend ETF (SDY), with inception November 2005.
WisdomTree Dividend ex-Financials ETF (DTN), with inception June 2006.
Vanguard High Dividend Yield ETF (VYM), with inception November 2006.

For each of these ETFs, we compare average monthly total (dividend-reinvested) return, standard deviation of total monthly returns, monthly reward-risk ratio (average monthly return divided by standard deviation), compound annual growth rate (CAGR) and maximum drawdown (MaxDD) to those for SPY over matched sample periods. We also look at alphas and betas for the five ETFs based on simple regressions of monthly returns versus SPY returns. Using monthly total returns for five high-dividend stock ETFs and SPY over available sample periods through February 2019, we find that:

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