Implementing a Systematic Long-only Quality and Dividend (QAD) Strategy: Evidence from the Singapore Market

Abstract

With falling interest rates and bond yields, generating income for investors seeking regular cash flows has become increasingly difficult. Equity dividend strategies present a viable alternative for such investors. We believe, ceterius paribus, that a strategy based on selecting high quality companies which pay sustainable dividends should be attractive to investors. We construct a composite Quality and Dividend (QAD) score using 'off-the-shelf' criteria and publicly available financial data and show that an annual-rebalanced, long-only portfolio of top-quintile stocks selected using our score in Singapore outperforms the Straits Times Index (STI) - both in terms of absolute returns (by 7.34% pa) and risk adjusted returns - while having an moderate annual turnover (a mean turnover of 41.07%). We show that our QAD score predicts the persistence for up to 3 years and there is a weak relationship between the price multiple and the QAD score. We further show that a QAD portfolio performs better than a similar annually rebalanced, top quintile portfolio constructed based on maximising dividend yield. The systematic long-only QAD strategy using `off -the-shelf' criteria provides a practical, executable, systematic methodology that delivers quality dividends cash flow along with better total returns than the STI in the Singapore market.