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High Yield, Low Payout

Pankaj N. Patel

ISI Group

Souheang Yao

Credit Suisse

Heath Barefoot

Credit Suisse

August 15, 2006

High Yield and Low Payout
What is the optimal combination of dividend yield and payout ratio for the investors? We tested companies within the S&P 1500 and found that investors should look for companies with a high yield and low payout ratio for their portfolios. The high dividend yield and low pay out ratio basket of stocks had the best performance in our backtest since 1990.

Dividend Yield
How has the plain dividend yield strategy worked over the years? Stocks with high yields generally outperform those with low yields. The highest-dividend-yielding stocks were not overall leaders. Stocks ranking in decile eight had the best performance.

Return Contribution of Dividends
Dividend contribution to total returns was more than 40% from 1926 to 1990. The 2003 tax reduction on dividends has encouraged companies to increase their dividends; dividends' contribution to total return has risen and will continue to rise in coming years.

Number of Pages in PDF File: 24

Keywords: Dividend Yield, Payout Ratio

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Date posted: November 21, 2006  

Suggested Citation

Patel, Pankaj N. and Yao, Souheang and Barefoot, Heath, High Yield, Low Payout (August 15, 2006). Available at SSRN: http://ssrn.com/abstract=946448 or http://dx.doi.org/10.2139/ssrn.946448

Contact Information

Pankaj N. Patel (Contact Author)
ISI Group ( email )
666 Fifth Avenue
11th Floor
New York, NY 10103
United States
Souheang Yao
Credit Suisse ( email )
Eleven Madison Avenue
New York, NY 10010
United States
Heath Barefoot
Credit Suisse ( email )
Eleven Madison Avenue
New York, NY 10010
United States
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References:  10
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