Forecast dividend yield strategy outperforms - Hong Kong SAR

Executive summary

• Using S&P Global Market Intelligence estimates, dividend factors constructed based on high forecast dividend yield (HFDY) outperforms Hong Kong SAR's benchmark by 2.43% annualized over the past decade. HFDY is also better versus trailing dividend yield metrics (HTDY) by 0.67% annualized over the same period.

• HFDY presents better risk-adjusted return at 0.22 (Sharpe Ratio 10 years) and 0.28 (Sortino Ratio 10 years), compared with 0.17 and 0.22 for HTDY.

• Over the past decade, forecast dividend yield proved to be a defensive cushion of share price drops with a higher information coefficient (IC) during bear months.

• HFDY provides exposure to typical high-yielding sectors. Over the past 10 years, the top sector— Financials—had an average exposure of 36.1%, representing a 10.6% active exposure compared with the benchmark. Compared with yield strategies, dividend factor constructed based on high forecast dividend growth (HFDG) exhibits better sector diversification, but underperforms overall.

• Dividend Forecasting service, supported by fundamental bottom-up approach adds key values to generating more meaningful dividend yields in forward-looking trading strategies, based on our case studies.

For more information, please contact dividendsapac@ihsmarkit.com

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Posted 19 September 2022 by Ruiying Zhao, Research Analyst, Equity Data & Analytics, S&P Global Market Intelligence

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This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.