The content is integrated from CICC Wealth and Lazy Raising Foundation
Recently, the performance of the dividend strategy has not been as good as before, and the CSI Dividend Index has retraced more than 6% since June.
Is the dividend theme fund overheated, and can it still get on the bus? And when should we sell a bonus strategy?
01. How long can the bonus strategy be "red"?
The classic dividend strategy is a stock selection strategy with dividend yield as the core indicator, mainly investing in companies that continue to pay dividends stably, and striving to obtain profit space through the company's stable dividends.
To a certain extent, the high dividend proves that the company's profitability is good, the cash flow is relatively sufficient, and the willingness to pay dividends is also strong, mainly concentrated in mature industries such as banking, coal, transportation, and electric power.
Therefore, in the case of weak certainty of growth style and prosperity, the dividend strategy of investing in traditional and mature enterprises has undoubtedly become a rare "safe haven" for funds.
Instead of dwelling on short-term drawdowns, look at the long term. Judging from the history of A-shares in the past ten years, the dividend strategy has indeed outperformed most mainstream stock indexes during several market downturns, which can provide us with certain security protection.
Taking the CSI Dividend Index as an example, in 2016, 2018 and the continuous volatility in the past three years, the CSI Dividend Index has stepped out of a relatively excellent independent market, while the dividend low volatility index has achieved positive returns every year except for 2018.
Chart: Comparison of the rise and fall of the dividend index and the major stock indexes in the past ten years
Source: Wind, CICC Wealth Products & Solutions, data as of 2024/6/25.
Not only in A-shares, but from a global perspective, the dividend strategy is also a powerful tool to be able to ride through the cycle.
Looking at developed markets such as the United States and Japan, from a long-term perspective, the dividend index compiled by MSCI has outperformed the parent index in most cases, and the volatility of the dividend index in some markets is lower than that of the parent index.
Chart: A snapshot of the performance of dividend indices in major global markets
Data source: MSCI official website https://www.msci.com/end-of-day-data-search, statistical time period from January 1999 to October 2023.
02. Is the dividend strategy overheated at this stage?
"Buy when no one cares, sell when people are buzzing", in our habitual cognition, if a theme style is too dazzling in the short term, it will cause concerns about risk accumulation. In the past three years, A-shares have fluctuated repeatedly, and the dividend strategy has always been in a volatile upward trend.
From the perspective of valuation level, although the CSI Dividend Index has been fluctuating and rising in the past decade, the price-earnings ratio has only risen slightly, and it has not bubbled because of the rise, which may be due to the faster endogenous earnings growth of enterprises, and there may still be opportunities for valuation improvement in the future.
Chart: CSI Dividend Index points and valuation trends in the past decade
Source: Wind, CICC Wealth Products & Solutions, data as of 2024/6/25.
From the perspective of congestion, the dividend strategy is indeed in a hot state at present, but if you look at it for a long time, compared with the beginning of 2018 and earlier in 2015 and other years, the current congestion is only in a medium to high position.
Chart: Congestion measurement of CSI Dividend Index
Source: Wind, CICC Wealth Products & Solutions; Statistical period: 2011/01/01-2024/06/26
Although short-term market fluctuations cannot be predicted, from a medium- to long-term perspective, the macro economy is still in the transition stage, and the low interest rate environment we are in is likely to continue.
Therefore, when there is a large drawdown in the market, it may be the right time to consider whether it is the right allocation for the dividend strategy.
03. When to sell the bonus strategy?
Sell take profit based on dividend yield metrics
When the dividend yield is below the historical quantile of 50% in the past 10 years, it indicates that the cost performance of the dividend strategy is not high, and you can consider selling in batches to take profit.
When the monthly dividend yield is lower than the "danger value" in the past 10 years, or is below the historical quantile of 25%, you can consider liquidating the position and selling to take profit.
Sell and take profit according to the PE valuation indicator
The companies related to the dividend strategy are basically in the late stage of growth or maturity in the life cycle of the enterprise, and they can also refer to the PE valuation method to take profit.
When PE is above 50% of the historical quantile value in the past ten years, it may be considered to gradually sell and take profit in batches.
When PE is higher than the "danger value" in the past ten years or lower than the historical quantile value of 25%, you can consider liquidating the position and selling to take profit.
Take profit based on the profit of the position
When the dividend yield or PE valuation is close to the historical median value (50%), if the position dividend strategy has already made a profit, you can consider taking profit and leaving the principal part;
If there is no profit, you can also hold it for the time being, and do not make a profit until the dividend yield is close to the historical quantile of 25% or PE is close to the historical quantile of 75%, and then consider liquidating and selling to take profit.
Portfolio investments can be taken profit through dynamic rebalancing
If it is a portfolio composed of a dividend strategy and a technology growth strategy, you can regularly rebalance dynamically between the two strategies to achieve the purpose of taking profit.
The portfolio composed of dividend strategy, technology growth strategy and fixed income strategy can be dynamically rebalanced between stocks and bonds, and then dynamically rebalanced between the two equity strategies to achieve the purpose of taking profits.