Dividend investing is an important part of total return generation over the long-term investment horizon. Our research shows that dividend-paying stocks have historically outperformed non-dividend payers. Moreover, the top-quintile portfolio ranked by dividend yield had higher risk-adjusted returns than the bottom-quintile portfolio. When choosing high-dividend-yield stocks, the sustainability and quality of dividends should not be overlooked. Our analysis shows that a portfolio of companies with high free cash flow yield outperformed the overall market and companies with low free cash flow yield. The negative correlation between the returns of free cash flow yield and dividend yield factors indicates that combining them in a multifactor framework can potentially offer diversification benefits. This paper examines whether incorporating free cash flow yield into dividend analysis can deliver superior risk adjusted returns than pure dividend yield or free cash flow yield portfolios, without sacrificing income.view more white papers
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