High Dividend Equities – Fertile Grounds, Just Beware the Landmines

TCW

Description

ALTERNATIVE VIEWPOINT High Dividend Equities Conclusion While the high dividend universe is fertile ground with regard to stocks with potential for high returns, the space also contains an over-abundance of landmines, which could detract very meaningfully from returns. Income-oriented investors would be well-served to separate the wheat from the chaff and perform fundamental research, especially on stocks with abnormally high yields, in order to avoid those with deteriorating fundamentals and to ensure that dividends are indeed well supported. Also, we believe the high dividend equity space is clearly well-suited for fundamental analysis/research-based long-short strategies. A simple starting point would be to look for longs in the top 20% to 40% of dividend payers, and for shorts in non-dividend stocks and those with abnormally high yields. As a parting thought, consider the right panel of Exhibit 4 on the previous page. Companies that cut dividends have historically underperformed the S&P by 4.8% per year.

Identifying these names can potentially be an interesting approach for investors who employ short strategies. n This material is for general information purposes only and does not constitute an offer to sell, or a solicitation of an offer to buy, any security. TCW, its officers, directors, employees or clients may have positions in securities or investments mentioned in this publication, which positions may change at any time, without notice.

While the information and statistical data contained herein are based on sources believed to be reliable, we do not represent that it is accurate and should not be relied on as such or be the basis for an investment decision. The information contained herein may include preliminary information and/or “forward-looking statements.” Due to numerous factors, actual events may differ substantially from those presented. TCW assumes no duty to update any forward-looking statements or opinions in this document.

Any opinions expressed herein are current only as of the time made and are subject to change without notice. Past performance is no guarantee of future results. © 2016 TCW 865 South Figueroa Street | Los Angeles, California 90017 | 213 244 0000 | @TCWGroup 6 .