Dividend Yield Strategy in the British Stock Market 1994-2007

19 Pages Posted: 6 Mar 2008

See all articles by Janusz Brzeszczynski

Janusz Brzeszczynski

Newcastle Business School (NBS), Northumbria University, Newcastle upon Tyne, United Kingdom

Kathryn Archibald

Heriot-Watt University

Jerzy Gajdka

University of Lodz

Joanna Brzeszczynska

Heriot-Watt University

Date Written: February 28, 2008

Abstract

The subject of this study is the profitability of an investment strategy focused on high dividend yield stocks from the British stock market in years 1994 - 2007. We follow the study of Filbeck and Visscher (1997), who analysed this strategy for the companies listed at the London Stock Exchange (LSE) from 1984 to 1994, and construct the portfolios of Top Ten highest dividend yielding companies from the FTSE100 index, which are rebalanced annually until 2007. Our findings are also analysed in a broader context of economic significance, following the studies of McQueen, Shields and Thorley (1997) and Visscher and Filbeck (2003), by considering transaction costs and taxes. We also add the currency risk and look at the obtained results from the point of view of international investors.

The results demonstrate that the portfolios composed of the high dividend yield stocks are capable of beating the market, however this has not been happening consistently in the entire analyzed sample period. Nevertheless, the average annual rate of return of the Top Ten portfolios has been over four times as high as the corresponding change of the market index. The analysis of the most important risk-adjusted measures also indicates that the dividend yield portfolios have been a profitable investment.

The results presented in this study have an important implication for investors regarding their investment horizon choices. The high dividend yield portfolios in the British market proved to be a profitable investment in a longer run while their returns can vary in shorter periods.

Keywords: dividends, investment strategy, stock market, returns predictability, asset pricing, efficient markets theory

JEL Classification: G15

Suggested Citation

Brzeszczynski, Janusz and Archibald, Kathryn and Gajdka, Jerzy and Brzeszczynska, Joanna, Dividend Yield Strategy in the British Stock Market 1994-2007 (February 28, 2008). Available at SSRN: https://ssrn.com/abstract=1100623 or http://dx.doi.org/10.2139/ssrn.1100623

Janusz Brzeszczynski (Contact Author)

Newcastle Business School (NBS), Northumbria University, Newcastle upon Tyne, United Kingdom ( email )

Department of Accounting and Financial Management
City Campus East
Newcastle upon Tyne, NE1 8ST
United Kingdom

Kathryn Archibald

Heriot-Watt University ( email )

Edinburgh, EH14 4AS
United Kingdom

Jerzy Gajdka

University of Lodz ( email )

Ulica Prezydenta Gabriela
Narutowicza 65 str.
Lodz, 90-131
Poland

Joanna Brzeszczynska

Heriot-Watt University ( email )

SLS
Riccarton Campus
Edinburgh EH14 4AS, EH14 4AS
United Kingdom

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