Abstract
Purpose – This study investigates the efficiency of Big Safe Dividends (BSD) as an investment strategy for building successful portfolios in the Brazilian stock market.
Theoretical framework – Using Carlson’s (2010) model, stocks with high dividend potential are identified and portfolios of 10, 15, 20, and more stocks are constructed. These portfolios are analyzed over the period from 2010 to 2023.
Design/methodology/approach – The performance of the BSD portfolios is compared to the main Brazilian stock market indices (IBOV, IDIV, IBrX, and IGC). The alpha generation of these portfolios is assessed using OLS regression models based on multi-factor asset pricing models, incorporating Fama and French’s (1992, 1993) five risk factors, Carhart’s (1997) momentum factor, and Amihud’s (2002) liquidity factor.
Findings – The results show that BSD portfolios consistently outperform the four benchmark indices over the period analyzed. The study confirms that the use of BSD is effective in forming stock portfolios that generate positive and significant alphas.
Practical & social implications of research – The primary contribution of this study is the evidence supporting BSD as a valid indicator of a dividend factor, showing that the criteria for selecting companies that pay big and safe dividends successfully capture dividend risk, which is priced in the Brazilian market.
Originality/value – This finding is unique in the context of investment strategies related to dividend investing in Brazil, offering novel insights for investors focusing on dividend-based portfolios.
Keywords – dividend yield; investment strategy; factor investing.
References
Ahmad, N., Ghouse, S., & Salamuddin, N. (2017). Empirical analysis of the dogs of the dow (DoD) trading strategy in developed and developing Asian markets. Pertanika Journal of Social Sciences and Humanities, 25, 75-84.
Alexeev, V., & Mardi, D. (2015). Equity portfolio diversification with high-frequency data. Quantitative Finance, 15, 1205-1215.
Amihud, Y. (2002). Illiquidity and stock returns: cross-section and time-series effects. Journal of financial markets, 5(1), 31-56.
Ang, A., & Bekaert, G. (2007). Stock return predictability: Is it there? The Review of Financial Studies, 20(3), 651-707.
Baker, H. K., De Ridder, A., & Råsbrant, J. (2020). Investors and dividend yields. The Quarterly Review of Economics and Finance, 76, 386-395.
Börjesson, E., & Lindström, H. (2019). The Value of Dividends: The effect of dividend exposure on stock returns.
Brito, N. R. O. (1981). O efeito de diversificação de risco no mercado acionário brasileiro. RAUSP Management Journal, 16(2), 108-121.
Carhart, M. M. (1997). On persistence in mutual fund performance. The Journal of Finance, 52(1), 57-82.
Carlson, C. B. (2010). The Little Book of Big Dividends: A Safe Formula for Guaranteed Returns. John Wiley and Sons.
Cejnek, G., & Randl, O. (2020). Dividend risk premia. Journal of Financial and Quantitative Analysis, 55(4), 1199-1242.
Clemens, M. (2013). Dividend investing performance and explanations: a practitioner perspective. International Journal of Managerial Finance.
Conover, C. M., Jensen, G. R., & Simpson, M. W. (2016). What difference do dividends make? Financial Analysts Journal, 72(6), 28-40.
Da Silva, A. L. (2001). Empirical tests of the Dogs of the Dow strategy in Latin American stock markets. International Review of Financial Analysis, 10(2), 187-199.
Dichev, I. D. (2007). What are stock investors’ actual historical returns? Evidence from dollar-weighted returns. American Economic Review, 97(1), 386-401.
Domingues, C. H. S., Aronne, A., Pereira, F., & Magalhães, F. (2022). Piotroski, Graham e Greenblatt: Uma Abordagem Empírica do Value Investing no Mercado Acionário Brasileiro. Brazilian Business Review, 19, 475-491.
Fama, E. F., & French, K. R. (2015). A five-factor asset pricing model. Journal of Financial Economics, 116(1), 1-22.
Fama, E. F., & French, K. R. (1993). Common risk factors in the returns on stocks and bonds. Journal of financial economics, 33(1), 3-56.
Filbeck, G., & Visscher, S. (1997). Dividend yield strategies in the British stock market. The European Journal of Finance, 3(4), 277-289.
Fin, L. A. F., & Sheng, Y. T. (2008). ‘Dogs of the Dow’ Down Under. AJAF, (3), 30.
Fisher, L., & Lorie, J. H. (1970). Some studies of the variability of returns on investments in common stocks. The Journal of Business, 43(2), 99-134.
Galdi, F. C. (2008). Estratégias de investimento em ações baseadas na análise de demonstrações contábeis: é possível prever o sucesso? (Doctoral dissertation, Universidade de São Paulo).
Gordon, M. J. (1963). Optimal investment and financing policy. The Journal of Finance, 18(2), 264-272.
Hirschey, M. (2000). The “dogs of the Dow” myth. Financial Review, 35(2), 1-16.
Hodrick, R. J. (1992). Dividend yields and expected stock returns: Alternative procedures for inference and measurement. The Review of Financial Studies, 5(3), 357-386.
Kim, D. (2019). The Dogs of the Dow Theory C Is It Valid? International Journal of Economics and Finance, 11(5), 43-49.
Lev, B., & Thiagarajan, S. R. (1993). Fundamental information analysis. Journal of Accounting Research, 31(2), 190-215.
Lintner, J. (1962). Dividends, earnings, leverage, stock prices, and the supply of capital to corporations. The Review of Economics and Statistics, 243-269.
Martins, O., & Pontes, F. (2022). O investidor em ações de dividendos. São Paulo: TC.
Martins, O. S., Souza, R. A. M., & Girão, L. F. A. P. (2022). Persistência dos dividendos e gerenciamento de resultados em mercados emergentes. Revista Contabilidade & Finanças, 33(88), 130-149.
McQueen, G., Shields, K., & Thorley, S. R. (1997). Does the “Dow-10 Investment Strategy” beat the Dow statistically and economically? Financial Analysts Journal, 53(4), 66-72.
Mota, S. L., Moura, F. F., & Martins, O. S. (2023). Reação do mercado ao anúncio do pagamento de dividendos: o que explicam as teorias da sinalização e do fluxo de caixa livre? Revista Enfoque: Reflexão Contábil, 42(2), 1-18.
Nicholson, S. F. (1968). Price ratios in relation to investment results. Financial Analysts Journal, 24(1), 105-109.
Oliveira, F. N., & Paula, E. L. (2008). Determinando o grau ótimo de diversificação para investidores usuários de home brokers. Brazilian Review of Finance, 6(3), 439-463.
Ou, J. A., & Penman, S. H. (1989). Financial statement analysis and the prediction of stock returns. Journal of Accounting and Economics, 11(4), 295-329.
Palazzo, V., Savoia, J. R., Securato, J. R., & Bergmann, D. R. (2018). Análise de portfólios de valor no mercado brasileiro. Revista Contabilidade & Finanças, 29, 452-468.
Peralva, V. M. (2020). Múltiplos de ações e indicadores financeiros para seleção de portfólios: uma análise para o mercado acionário brasileiro. Brazilian Journal of Business, 2(3), 2006-2027.
Piotroski, J. D. (2000). Value investing: The use of historical financial statement information to separate winners from losers. Journal of Accounting Research, 1-41.
Piotroski, J. D. (2005). Discussion of “separating winners from losers among low book-to-market stocks using financial statement analysis”. Review of Accounting Studies, 10(2), 171-184.
Santiago, D. C., & Leal, R. P. C. (2015). Carteiras igualmente ponderadas com poucas ações e o pequeno investidor. Revista de Administração Contemporânea, 19, 544-564.
Securato, J. R., & Rogers, P. (2009). Estudo comparativo no mercado brasileiro do capital asset princing model (CAPM), modelo 3-fatores de Fama e French e reward beta approach. Revista de Administração Contemporânea, 3(1), 159-159.
Siegel, J. J. (2005). The future for investors: Why the tried and the true triumphs over the bold and the new. Currency.
Silva, A. C. M. D., Faria, R. M., & Vieira, P. R. D. C. (2021). Formação de carteira de investimentos baseada em value investing: um estudo entre as metodologias de Piotroski e Greenblatt. Revista de Contabilidade do Mestrado em Ciências Contábeis da UERJ, 25(3), 44-60.
Statman, M. (2004). The diversification puzzles. Financial Analysts Journal, 60(4), 44-53.
Statman, M. (1987). How many stocks make a diversified portfolio? The Journal of Financial and Quantitative Analysis, 22(3), 353-363.
Stevenson, W. J. (1981). Estatística aplicada à administração. In Estatistica aplicada a administracao (pp. 495-495).
Vasconcelos, L. N. C., & Martins, O. S. (2019). Value and growth stocks and shareholder value creation in Brazil. Revista de Gestão, 26(3), 293-312.
Visscher, S., & Filbeck, G. (2003). Dividend-yield strategies in the Canadian stock market. Financial Analysts Journal, 59(1), 99-106.
Werneck, M. A., Nossa, V., Lopes, A. B., & Teixeira, A. J. (2010). Estratégia De Investimentos Baseada Em Informações Contábeis: Modelo Residual Income Valuation-Ohlson Versus Rscore–Piotroski. Advances in scientific and applied accounting, 141-164.
Zaimovic, A., Omanovic, A., & Arnaut-Berilo, A. (2021). How Many Stocks Are Sufficient for Equity Portfolio Diversification? A Review of the Literature. Journal of Risk and Financial Management, 14, 1-30.
You, C. F., Lin, S. H., & Hsiao, H. F. (2010). Dividend yield investment strategies in the Taiwan stock market. Investment management and financial innovations, (7, Iss. 2 (cont.)), 189-199.
If a paper is approved for publication, its copyright has to be transferred by the author(s) to the Review of Business Management – RBGN.
Accordingly, authors are REQUIRED to send RBGN a duly completed and signed Copyright Transfer Form. Please refer to the following template: [Copyright Transfer]
The conditions set out by the Copyright Transfer Form state that the Review of Business Management – RBGN owns, free of charge and permanently, the copyright of the papers it publishes. Although the authors are required to sign the Copyright Transfer Form, RBGN allows authors to hold and use their own copyright without restrictions.
The texts published by RBGN are the sole responsibility of their authors.
The review has adopted the CC-BY Creative Commons Attribution 4.0 allowing redistribution and reuse of papers on condition that the authorship is properly credited.