With the advent of the era of low interest rates, the dividend investment strategy represented by investing in high-dividend assets has become a "sweet spot" for the current market to obtain excess returns. At the policy level, the regulator has made a clear statement to encourage listed companies to increase the level of dividends, which has also attracted more and more investors' attention.
In this issue of "Let's Talk Together", we inviteLiu Yong, the best manager who is good at dividend investment strategy, please explain it to himWhy the dividend investment strategy is popular, analyze the difference in returns between different types of dividends** and explore the investment opportunities of the dividend investment strategy** in 2024.
Dividend investment strategies may be more advantageous in the early stages of economic recovery
CEIBS**Liu Yong:
Thank you for your attention to the dividend investment strategy, from August 2022 to the present, the dividend investment strategy has a relatively obvious excess return compared to the mainstream broad-based index, especially in 2023, the dividend investment strategy is also one of the few strategies in the market that can obtain absolute returns.
From a professional perspective, the risk premium composition of all A-shares can be divided into two categories: the risk premium given by reinvestment and the risk premium of debt-like shares. Although the valuation of dividend assets has recovered recently, the risk premium of bond-like bonds is still negative. Because the valuation of growth stocks in the A** field is relatively high, and the corresponding bond-like risk premium is low, dividend assets are still relatively cheap dividend yield assets.
Through the comparison of the yields of different industries and credit bonds in A-shares, we can find that there are ten industries with bond-like risk premiums higher than the full A level, such as coal, banking, petroleum and petrochemical industries, which means that the expected return of the dividend yield obtained by investing in these industries is more attractive than the allocation of credit bonds in these industries.
From the perspective of the whole strategy, the dividend investment strategy has a better risk-return ratio than the ** index, and has a low correlation with the mainstream broad-based index, which is suitable for institutions to use as the bottom position allocation, which can diversify the allocation risk of the portfolio and reduce the volatility of the portfolio. Historically, high-dividend assets have outperformed mainstream indices in three main periods: the first half of 2014, the second half of 2016 and from August 2022 to the present, all of which are expected to be relatively weak in economic growth, or in the early stage of recovery, and the entire market lacks opportunities for structural high growth, so it can be understood as having certain characteristics of assetization.
In this case, investors will reduce their demand for growth and instead focus on high-dividend assets with stable dividend returns. Because there are more pro-cyclical industries such as finance and real estate among high-dividend assets, when the economy is better than everyone expected, the performance of the entire high-dividend assets may not be the best, but they can also have absolute returns. Relatively speaking, the situation where excess returns underperform more is that the market boom track has a very good opportunity and can accommodate a lot of funds, which is a relatively large blood-sucking effect for dividend stocks.
Whether there will be a style change in the future mainly depends on whether there is a relatively big breakthrough in new energy and AI, so as to become a boom track. At present, although the static valuation of new energy is relatively low, at least from the first half of 2024 to the first three quarters, the entire supply and demand fundamentals remain to be seen. AI depends on the application implementation in 2024, and the current R&D and application of our AI large model are limited by computing power to a certain extent. If AI applications develop rapidly in 2024 and attract the attention of market funds, it may have a certain blood-sucking effect on dividend stocks.
How to achieve the alpha of a dividend investment strategy
CEIBS**Liu Yong:
Let's look at the differences at two levels: stock picks and strategies.
At the stock selection level, I will mainly enhance from the following four aspects, and think about how to beat the passive dividend investment strategy in excess returns**:
First, overweight debt-like assets with stable fundamentals. Including utilities (water, electricity and gas), transportation (highways, ports), textiles and garments, media (publishing), and telecom operators. These assets are characterized by solid fundamentals, good cash flows, and relatively weak macroeconomic influences. Even in 2023, this type of asset can achieve a certain growth rate, and the correlation with the macro is relatively low. While this type of asset accounts for a small percentage of the total bonus assets (around 25%), my strategy is to overweight this type of asset. Cash flow and valuation are the first considerations for stock selection, followed by dividends and ROE, and finally growth considerations.
Preferably the company I want to choose has a commitment to the dividend ratio, or the dividend ratio has a tendency to increase. In 2023, more and more companies will realize that they should have a commitment to the dividend ratio and give investors a relatively stable expectation (there will be high dividends in the next few years), then the valuation of the company in the secondary market will be improved to a certain extent.
Second, look for the expected difference in dividend yields. In 2023, the most obvious excess returns of the entire dividend investment strategy will be in the category of industries and **, which will rise by about 30%, and I think the current valuation level is in a reasonable position. Actively managed equity** is most likely to look for dividend yield (calculated as "dividend rate * total earnings market value") The idea of stock selection in fundamentally sound assets is to find companies with dividend yields that are expected to increase or companies with earnings reversal.
The first is the dividend rate, and the valuation of stable listed companies in 2023 is more reasonable, and there may be opportunities in some sub-sectors of environmental protection and public utilities. After researching listed companies, I found that some private listed companies are planning to shrink capital expenditure, and due to the expansion of capital expenditure in previous years, assets with high rates of return are becoming less and less, and they also see that companies that can increase the dividend rate will usher in a relatively large increase in valuation in 2023, so the capital expenditure of these companies may gradually decline in 2024, and increase the dividend ratio, which will bring an increase in dividend yield, and finally bring the best of the stock price. However, investing in these companies is a left-sided logic, so it also needs to be verified by the capital expenditure of quarterly reports, including cash flows, on a period-by-period basis. If a listed company issues a dividend commitment: no less than a certain proportion of profits will be distributed each year for the next three or five years, which is a relatively fast catalyst for the stock price and will increase the valuation.
The second is to find the expected difference in the total profit. The dividend ratio of such companies themselves is relatively high, for example, the brand side of textile and apparel companies will rise well in 2023, mainly because the performance will maintain growth in 2023 and the dividend ratio will be higher. We can follow the logic of going overseas and find a series of companies at the upstream manufacturing end, which have a relatively high dividend ratio, and then superimpose a reversal in earnings, and finally there will be a relatively large expected difference in dividend yield. Therefore, this kind of company may be actively managed to earn excess returns, which can bring investment opportunities with better odds.
Third, the dividend rate indicator is introduced. In 2023, some trends in U.S. stocks and Japanese stocks will be reviewed, among which there is a category of ** with a high dividend ratio, but because there is still a certain degree of market recognition, the market does not give a very low valuation, so this kind of ** has a high dividend ratio, but the dividend yield is not high. From an elongated perspective, some consumer stocks in Japan follow this logic and have the characteristics of long-term **. On the other hand, A-shares, we rank according to the dividend rate of A-shares, food, beverages, media and textiles and clothing are in the forefront, their dividend ratios are not low, the proportion is roughly more than 50%, but because the market still has a certain degree of recognition, the valuation of these ** is not very low, so this kind of assets can also earn a certain excess return.
Fourth, strong cyclical industry allocation. The industries with strong cycles include coal and oil on the resource side, as well as real estate, building materials, and steel in the real estate industry chain, and banks account for a large proportion of financial stocks. This kind of asset and the economy is strongly correlated, some industries and ** there are dividend yield traps or valuation traps, such as real estate or banking-related industries, although the current dividend yield and dividends are also higher, but the valuation is still declining year by year, which is a more obvious dividend yield trap. For this kind of assets, we should also match accordingly, and the most optimistic is the partial natural resource category with supply-side logic, such as coal, petroleum and petrochemical related **I will give key allocation. Secondly, it will also replace and enhance individual industries, such as replacing part of the allocation ratio of steel and real estate with industrial metals, the logic is the strong supply attribute of resource stocks, and the excess return is more obvious in the decline period of real estate.
At the strategic level, the difference between the equity of the dividend investment strategy I manage and the other similar interests are:
First, compared to quantitative dividendsThe quantitative** will be relatively scattered, and the active ** manager will allocate a higher weight to the target with high valuation and cost performance through the research and judgment of the industry and the **. Secondly, through the optimal allocation of stable assets and pro-cyclical assets, we can achieve better control of returns and drawdowns, and the long-term goal is to outperform the benchmark index. Finally, by looking for industries with poor dividend yield expectations, it is the direction of better odds at the current point in time, and it is also the direction of achieving greater certainty of excess returns in the future.
Second, compared to other actively managed bonus productsSome of the best styles of dividends will drift, most of them are in the direction of value, I will still insist on dividend assets, through the high and low allocation of the internal industry, including the mining of the first to earn excess returns.
Four positive signals driving the macroeconomic upturn
CEIBS**Liu Yong:
It is undeniable that this is a difficult time for equity assets, and in fact, the low valuation only reflects the relative safety, not the reason for the market. In the future, there must be more positive signals on macroeconomic policies to reverse everyone's current weak confidence, otherwise although the odds of the market are very good, it may still need to stay at the bottom for a while. Next, let's expand on the positive signals worth paying attention to in 2024 in the macroeconomic segment:
First, internal demand. Since 2023, residents' excess savings have been high, and some enterprises are also reducing costs and increasing efficiency, so we will pay attention to the introduction of consumption stimulus policies in the future.
Second, external demand. Looking ahead to 2024, the most fundamental reason affecting our exports is the prosperity of the global economy. In the short term, factors such as ** barriers have caused the United States to import Chinese goods to decline, but it can rely on the share of Belt and Road countries to make up for it. The weak domestic and external demand has inhibited the production willingness of manufacturing enterprises to a certain extent, and it is expected to drive the investment and production of the manufacturing industry through the joint stimulation of domestic and external demand in 2024.
Third, infrastructure investment. In 2024***, it is expected to increase infrastructure investment through fiscal measures. If infrastructure investment reaches a growth rate of more than 6%, it is believed that it will have a positive effect on the market.
Fourth, real estate investment. Real estate is currently at the inflection point of the middle cycle, and in the future, we will pay attention to whether there are relevant policies to support and promote.
On the whole, the expectation of the current economic environment corresponds to the short-term position of A-shares still in the range, and we recommend that investors should not be too pessimistic at the current point, and there is a possibility that the economy will exceed expectations in 2024. The structural nature of the A**field will be further differentiated, so we have several principles for stock selection: find a margin of safety, or a higher dividend yield protection, or a double low of both valuation and stock price, and at the same time there are marginal catalysts in 2024, such an allocation is a relatively low-risk choice.
Risk Warning
*There are risks and investment should be cautious. The above content is for informational purposes only and is not indicative of future performance and is not intended as investment advice. The views expressed herein and ** are current and subject to change. Do not quote or ** without consent.