Creating a high dividend stock strategy while exploiting the low beta anomaly

Abstract

Dividends comprise a large portion of a stock's total return. Given the ageing of our population, the current low income environment, the lack of differential tax treatment of qualified dividends and capital gains, the demand for an efficient high income equity strategy has increased. We present a trading strategy combining high dividend paying stocks with low beta stocks that has provided better returns than the overall market with substantially lower systematic risk. In addition, this strategy provides better raw returns and higher Treynor and Sharpe ratios than the market during a period of rising interest rates, generally a period that does not support income sensitive assets.