With the sharp correction of growth stocks, the high dividend strategy has attracted more and more attention from investors.
Over the past few years, consumer stocks and track stocks have been sought after. Undervalued high dividend assets have gradually become the non mainstream of the market, and the number of broken net stocks in many industries has been increasing. However, with the change of the style of the A-share market this year, high dividend assets have become the focus of the market. Statistics show that in the context of the overall decline of the market this year, the low volatility dividend index is red against the trend. The CSI dividend index has increased by more than 1% this year, significantly outperforming the market.
Market analysts believe that due to the unique characteristics of high dividend companies, such as excellent financial performance, abundant cash flow and stable profitability, and most of these targets are bank stocks, utility stocks and cyclical resource stocks with large market value and small fluctuation of stock price, the high dividend sector shows defensive value in case of market shock or unilateral decline, At the same time, it can also obtain considerable dividend income, which often attracts the attention of absolute income investors in the volatile market.
high dividend strategy favored by the market
The tightening of monetary policy of the Federal Reserve has accelerated, and the risk appetite of China’s market has decreased. Since 2022, growth stocks have fallen sharply one after another, and the main A-share indexes have also fallen significantly. Among them, the Shanghai index has fallen nearly 5% year to date, the Shenzhen Component Index has fallen nearly 10%, the Kechuang 50 index has fallen nearly 15%, and the gem index has fallen more than 15%.
However, in the context of sharp declines in major indexes, the high dividend portfolio is attracting investors’ attention with high dividends and undervalued value. According to the data, the dividend index of China Securities Exchange, which reflects the overall performance of high dividend paying stocks in the A-share market, has been relatively strong recently, with an increase of 1.12% this year.
Affected by the sharp decline of the market, the dividend of China Securities Exchange also adjusted sharply before the Spring Festival, but the range was relatively small. After the festival, the market stabilized and rebounded, and the rebound range of the dividend index of China Securities Exchange was higher. The increase after the Spring Festival exceeded 5%, surpassing the market. On the occasion of today’s market shock, the dividend index of China Securities Corporation rose again, closing up 0.9%, led by high dividend sectors such as steel, coal, real estate and cement.
The high dividend strategy is based on the classic value investment theory – dividend discount model (DDM). The principle is that the total net value of a series of dividends expected to be distributed in the future is discounted according to the interest rate, which is the internal value of the stock. In practice, investors often use the dividend rate as the judgment index.
In the overseas market, the high dividend strategy is a long-term effective investment strategy and has been widely used, including a shares. According to the statistics of Debang securities, taking January 1, 2009 as the starting point, as of February 8, 2022, the annualized average yield of the dividend index of China Securities Exchange is 9.2%. Regardless of dividend reinvestment, the portfolio with high dividend strategy outperformed the 50 and 300 indexes.
In addition, the volatility and maximum pullback of CSI dividend index are lower than the main A-share index, with high return risk ratio and prominent long-term investment value.
why is the high dividend strategy valued?
This is related to the current market environment. This year, the global market volatility has intensified, A-Shares have been adjusted successively since 2022, the profit-making effect has dropped sharply, the market risk appetite has decreased, and the high dividend assets with low volatility and high dividend have become the focus of attention.
The historical experience of A-Shares also shows that the “umbrella” function of high dividend strategy is prominent in the shock market or bear market. It is more resistant to decline in the market shock or unilateral downward stage. High dividend assets are more defensive and generally offensive in the bull market.
Due to the unique characteristics of high dividend companies, such as excellent financial performance, abundant cash flow and stable profitability, when the economic outlook is uncertain and the market fundamentals are expected to turn, the large market value and high dividend targets mainly composed of bank stocks, public utility stocks and cyclical resource stocks have relatively small fluctuations in corporate profits, At the same time, it can also obtain considerable dividend income.
Debang Securities believes that high dividend assets belong to the classical value style, which is in a seesaw state with the performance of growth style. When the market changes from pursuing growth attack to value style risk avoidance, the victory rate of high dividend strategy increases. The fundamental reason is that high dividend companies can stably distribute cash dividends, with low valuation and more stable molecular expectations, This provides a safety cushion for its asset pricing.
Since 2021, the economy has entered the late stage of recovery from the accelerated acceleration period after the epidemic, and the actual recovery speed has slowed down. Superimposed on the global water release and the influx of Chinese residents’ wealth allocation into the stock market, a number of core asset prices have risen to a high level, the global stock market has entered a period of shock, and the value of high dividend strategic allocation has become prominent again.
In the long run, deppon Securities believes that the slowdown of economic growth will move the long-term interest rate center downward, the entry of long-term funds into the market will promote the dividend yield, the difference between dividend yield and long-term interest rate is expected to continue to expand, and the high dividend strategy will still be effective. At the same time, with the continuous improvement of the A-share market system and the increase of the voice of institutional investors, corporate governance has been paid attention, and the improvement of A-share dividend payout rate is also a long-term trend.
the dividend yield of these industries is high
According to the reporter of the securities times, high dividend assets are mainly concentrated in the traditional economic sector, and steel, banks and coal are large dividend payers, which is consistent with the enterprise life cycle.
In the process of expansion, the traditional economy has increased its control over the upstream, downstream and cost. With its own scale and cost advantages, it has gained more ability to resist the risk of macroeconomic and market fluctuations. When the market direction changes, the resistance to decline is stronger.
In addition, as the peak of capital expenditure has passed, the traditional economic sector generates stable and abundant cash flow and has a high dividend basis.
Taking the dividend yield of the steel sector in 2021 as an example, the dividend yield of the steel sector exceeds 5%, which can outperform most bank financial management. The dividend rate of banks, mining (mainly coal), real estate and other sectors exceeded 4%, which is also significantly stronger than that of most bank financial management. Household appliances, textiles and clothing, building decoration, non bank finance, commercial trade, public utilities and other industries also have a high dividend rate of more than 2%.
According to the research of Caixin securities, from the perspective of market characteristics, the high dividend sector is more popular in the market environment with undervalued attribute, good chip structure and low risk preference. At the same time, this kind of sector is continuously catalyzed by the “steady growth” policy, which reflects the attributes of good defense and attack, and has high allocation value.
Specifically, the reporter screened large cap stocks with a dividend rate of more than 3% in recent three years. It can be seen that the dividend rate of relevant stocks in coal, steel, banking and other sectors is high. Among them, the average dividend rate of Yankuang energy in recent three years is 8.2%, Baoshan Iron & Steel Co.Ltd(600019) is 7.46%, Daqin Railway Co.Ltd(601006) , China Petroleum & Chemical Corporation(600028) , China Shenhua Energy Company Limited(601088) , Bank Of Communications Co.Ltd(601328) are more than 6%.
