High Dividend Yield Stocks Research Articles

LEISURE INDUSTRY & INVESTMENT STRATEGIES. THE CASE OF EUROPEAN COMPANIES

The objective of the present research is to investigate whether the investment strategies based on: a) the systematic risk of a company, b) the dividend yield of a company, and c) the momentum of a stock as it is measured by the price performance over the previous calendar year, can produce above market returns. The sample consisted of all listed companies that operate within the leisure industry on a European level from 2009 to 2019. The results showed that investors in the leisure industry companies: a) are compensated for assuming low systematic risk (low beta portfolios) against to high systematic risk (high beta portfolios), b) must choose portfolios consisting of stocks with high dividend yield stocks rather than portfolios consisting of low dividend yield stocks, and c) are better off by choosing stocks that had a positive momentum in the previous year than stocks that had a low price performance in the previous year

Dissecting Shareholder Yield

High dividend yield stocks do not reliably earn above-average risk-adjusted returns. More complete measures of shareholder yield, which account for net share repurchases, perform better. We explore the use of net-debt paydown as a way to further enhance shareholder yield. The addition of net-debt paydown enhances risk-adjusted returns and creates a shareholder yield metric that is more robust over time. We also explore the technique of separating yield metrics by payout percentage as a way to enhance return predictability. We find some evidence that using payout percentage within a yield category can systematically improve portfolio performance.

The Settlement Period Effect in Stock Returns around the Dividend Payment Days

The T 3 settlement rule for stock trades allows the dividend-eligible investors to give buy orders on the third trading day preceding the dividend payment day (day T-3) for a trade to be settled on the dividend payment day (day T). I document significant positive abnormal returns equal to 24 bps per day (48% per year) on day T and 9 bps per day (18% per year) on day T-3. This suggests that some investors take advantage of T 3 settlement rule. The abnormal returns and volume are higher for high dividend yield stocks, illiquid stocks, and stocks with higher institutional holdings.

The Long and Short of Profitable Dividend Yield Strategies

High dividend yield stocks appeal to many investors, but their value-like characteristics raise concerns about payout sustainability and firm distress risk. We address this concern by forming portfolios comprising stocks that have high gross profitability and high dividend yield. The resultant “combo” strategies inherit the defensive qualities of high yield stocks in bad times while underperforming the market portfolio only modestly in good times. Averaged across market cycles, combo strategies exhibit low volatility and high Sharpe ratios reminiscent of “good deal” investments (Cochrane and Saa-Requejo [2000]). Comprehensive evidence shows that the high returns of such combo strategies are driven by the underpricing of low-risk stocks and the same behavior forces that underlie the well-known beta anomaly. These deep-seated forces suggest that the combo approach will continue to work well in the future.

Payout Policy Tax Clienteles, Ex‐dividend Day Stock Prices and Trading Behavior in Germany: The Case of the 2001 Tax Reform

AbstractThis paper examines the impact of the German 2001 tax reform, where Germany switched from a full imputation system to a classical system. Theory suggests that both price drop ratios and trading volume decrease following the reform. We document a significant reduction in the valuation of net dividends–in particular for high dividend yield stocks–and weakening payout policy tax clienteles. Ex‐dividend day returns are likely to be driven by short‐term traders. Though the reform removed incentives for cross‐border dividend stripping and reduced tax heterogeneity among investors, we show that the high trading volume around ex‐dividend days persists.

Dividend Investing: Strategy for Long-Term Outperformance

One place of particular recent investor interest has been dividend investing. Dividend investing has historically outperformed both the broader market and value investing, and at the same time shown lower risk. Dividend investing ‘overlap’ with both value investing and low-volatility investing, but is an independent investment style of its own. The specific reasons for the outperformance of dividend investing are a reduction in the agency costs associated with high free cash flows and a probable systematic mispricing (undervaluation) of high dividend paying stocks. Dividend investing sees fewer years with losses, which according to prospect theory adds significant utility to investor experience. The outperformance of high dividend yield stocks has been robust over the 1928-2011 timeframe. Since the underlying reasons for this outperformance are more behavioral in nature than institutional, chances are that history will repeat itself.

Ex-Dividend Day Stock Prices and Trading Behavior in Germany: The Case of the 2001 Tax Reform

This paper examines the impact of the German 2001 tax reform, where Germany switched from a full imputation system to a classical system. Theory suggests that both price drop ratios and trading volume decrease following the reform. We document a signi cant reduction in the valuation of net dividends - in particular for high dividend yield stocks - and weakening payout policy tax clienteles. Ex-dividend day returns are likely to be driven by short-term traders. Though the reform removed incentives for cross-border dividend stripping and reduced tax heterogeneity among investors, we show that the high trading volume around ex-dividend days persists.

Tax‐Induced Dividend Capturing

Abstract: I examine how institutions and individuals trade shares around ex‐dividend days. I predict that institutions are more likely than individuals to capture dividends for tax purposes by buying shares of a stock before it goes ex‐dividend. I infer the directions of trades and the identities of traders using trade and quote data. I find that both institutions and individuals increase their net buying activities on the last cum‐dividend days, especially in high dividend yield stocks; and that institutions buy significantly more shares than individuals. There is no excess buying or selling of shares on the ex‐dividend days. Further analysis suggests that dividend capturing activities are likely heavily driven by corporations. Finally, cum‐ and ex‐day investor trading intensity, especially that from institutions, impacts the ex‐day pricing of dividend in the predicted direction. These results suggest that institutions trade around ex‐dividend days consistent with their tax preference.

Tax-Induced Dividend Capturing

I examine how institutions and individuals trade shares around ex-dividend days. I predict that institutions are more likely than individuals to capture dividends for tax purposes by buying shares of a stock before it goes ex-dividend. I infer the directions of trades and the identities of traders using trade and quote data. I find that both institutions and individuals increase their net buying activities on the last cum-dividend days, especially in high dividend yield stocks; and that institutions buy significantly more shares than individuals. There is no excess buying or selling of shares on the ex-dividend days. Further analysis suggests that dividend capturing activities are likely heavily driven by corporations. Finally, cum- and ex-day investor trading intensity, especially that from institutions, impacts the ex-day pricing of dividend in the predicted direction. These results suggest that institutions trade around ex-dividend days consistent with their tax preference.

Dividend Yield Strategy in the British Stock Market 1994-2007

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.

Ex-Dividend Day Price and Volume: The Case of 2003 Dividend Tax Cut

We examine the impact of the 2003 dividend tax cut, which removes the differential taxation between dividends and capital gains for individual investors, on the ex-dividend day price and trading volume. We find the ex-dividend day price and volume are affected by taxes, risk, and transaction costs. The ex-dividend day price drop ratio (excess return) increases (decreases) and dividend clienteles weaken after the tax cut. Ex-dividend day abnormal volume among high dividend yield stocks decreases after the tax cut consistent with a diminished motivation for tax-induced trading. Our results suggest that individual investors have a measurable effect on the ex-dividend day price and trading volume.

Institutional and individual investor preferences for dividends and share repurchases

This study shows that individual investors prefer to invest in high dividend yield stocks and in dividend-paying firms whereas relatively lower-taxed institutional investors tend to prefer low dividend yield stocks and non-paying firms. Consistent with Brennan and Thakor's [Brennan, M. J., & A. V. Thakor. (1990). Shareholder preferences and dividend policy. Journal of Finance, 45, 993–1018] adverse selection model, informationally superior institutional investors are shown to prefer firms that engage in larger share repurchases whereas individual investors do not prefer share repurchases. These results are contrary to the widely held beliefs (a) regarding tax-based and non-tax-based dividend clienteles, (b) that firms pay dividends to encourage monitoring by institutional investors, and (c) that the personal tax rate on equity is low (or zero).

Time Variation of Ex‐Dividend Day Stock Returns and Corporate Dividend Capture: A Reexamination

This paper documents some empirical facts about ex‐day abnormal returns to high dividend yield stocks that are potentially subject to corporate dividend capture. We find that average abnormal ex‐dividend day returns are uniformly negative in each year after the introduction of negotiated commission rates and that time variation in ex‐day returns during the negotiated commission rates era is consistent with corporate tax‐based dividend capture. Ex‐day returns are more negative when the tax advantage to corporate dividend capture is greatest and more positive when increases in transaction costs and risk reduce incentives to engage in corporate tax‐based dividend capture.

THE MARKET REACTION TO THE 1986 TAX OVERHAUL: A STUDY OF THE CAPITAL GAIN TAX CHANGE

The Tax Reform Act of 1986 (TRA) eliminated the favorable tax treatment on long‐term capital gains in the US. Using a standard event study… CONTENTS AND ABSTRACTS 111 methodology, this paper examines daily stock return reactions to the tax overhaul. The results show that high dividend yield stocks earned a significant positive abnormal return and low yield stocks a significant negative return during the legislation period. This finding is consistent with the notion that the TRA made the market valuation of stocks shift in favor of high yield stocks.

Risk premia and the ex-dividend stock price behavior: Empirical evidence

It has been suggested that the positive abnormal return on ex-dividend days may be due, in part, to the existence of a risk premium. The evidence is consistent with the hypothesis that on ex-dividend days trading in low dividend yield stocks is dominated by ordinary investors who demand a tax premium for their higher tax liability on ordinary dividends relative to capital gains. Trading in high dividend yield stocks appears to be dominated by short-term traders who obtain a positive unsystematic risk premium. Finally, the structural relationship between rates of return, on the one side, and dividend yield and risk premia, on the other, is quite different on ex-dividend and other days as well as through time.

Capital gains tax and equity values: Empirical test of stock price reaction to the introduction and reduction of capital gains tax exemption

This paper evaluates the differential effect on stock prices of the introduction in Canada of $500,000 capital gains tax exemption and the reduction of this limit to $100,000 two years later. Using the seemingly unrelated regression methodology and controlling for thin-trading and heteroscedasticity, the empirical evidence indicates that the changes in capital gains tax laws had a differential effect on low-dividend yield and high-dividend yield stocks on both occasions. While the evidence indicates that the stock market anticipated the 1985 capital gains tax law changes, the significant market reaction to the 1987 reduction of the exemption occurred a day before and after the reading of the tax reform proposals in Parliament. Thus, it can be inferred from the results that, despite the presence of tax-sheltering opportunities in Canada, changes in capital gains tax laws affect equity values.