Last winter, I came across some interesting statistics about dividend investing that I thought I’d share. They were about seasonal patterns and when dividend stocks actually do well and when they don’t. Then I also want to take the opportunity to argue against a claim mentioned in the study.
I’m not a self-proclaimed expert when it comes to dividend investing. However, I have experienced a lot that surprised me.
Hopefully I’ve learned something. At the very least, I spend a lot more time deep-diving into my holdings now than I did before. I’m not always right, but the fact is, not even Warren Buffett is right all the time. My goal remains to build a portfolio of the best dividend paying companies.
Sometimes I pick up things that I find interesting and want to share. One such example is…
Seasonal patterns for high-dividend winners
Normally April is a good month to own stocks. But that really isn’t true this year. This post is more about when it’s best to own dividend stocks, or rather high-dividend stocks.
There is an index called SIXSEDIV21SRIGI which tracks a whole bunch of other indexes, including the well-known SIXRX which tracks the Stockholm Stock Exchange’s broad index including dividends. SIXSEDIV21SRIGI is a stock index that measures the total return of the 21 stocks with the highest dividend yield of the 60 most traded on the Stockholm Stock Exchange.
To make everything a little fairer, you don’t just take this year’s dividend as a parameter. You also look at the two previous years and weigh this year’s dividend with a weighting of 60%, the previous year 30% and the year before that with 10%. So it’s this year’s dividend together with the last two years that matters.
When it comes to the Stockholm Stock Exchange, it is no coincidence that we find banks, telecoms, and certain commodity companies as well as a bit of industry in this group.
Then, year by year, they looked at how this index had performed and divided the year into spring/summer and autumn/winter.
| Spring/summer | February–July |
| Autumn/winter | August–January |
The result has been that this type of company underperformed during spring/summer and then performed better once autumn and winter arrived.
| February–July | August–January | |
|---|---|---|
| 2017 | -0.7 | 0% |
| 2018 | -1.20% | 1.20% |
| 2019 | -3.30% | -1.20% |
| 2020 | -6.70% | -2.10% |
| 2021 | -5.10% | 8.10% |
| 2022 | 1.40% | 3.80% |
| 2023 | -9.80% | -0.30% |
| 2024 | -5.40% | 2.70% |
If we instead look at the months individually and calculate an average, we see that May is the worst month for these with -1.1% in total return, while September is apparently the best with +0.8% .
Here you can of course think that May is one of our most dividend-heavy months and that the dividend-paying stocks perform worse when the money is distributed. If a share distributes 1 SEK, the price should also fall 1 SEK, all else being equal. It is not that simple, but here you look at the total return, after which the dividend is added back and included in the total return.
Yes, the bottom line is that high-dividend earners do worse during the spring/summer, and better during the latter part of the year. The difference is not small either, but a full 4 percentage points .
The reason for this is not entirely clear. One reason could very well be that selling pressure increases just after the majority of dividends have been paid out, i.e. in April/May. Another could be that foreign institutions that do not like dividends sell ahead of the AGMs.
Then the statistics only show the last 10 years. It’s not a very long period and it doesn’t have to look the same in the next 10 years.
High-dealers fare worse
This index also shows that high-dividend stocks have underperformed, at least from the end of 2016 onwards. In fact, you would have received a 2% lower total return per year if you had held the 21 with the highest dividends rather than the Stockholm Stock Exchange’s broad index SIXRX. That’s quite a lot and over time it amounts to a crazy amount of money.
If your starting capital is 0 SEK and you save 4000 SEK/month and get 8% annually, the total amount after 30 years will be:
5,634,202 SEK
If your return is instead 6%, the sum after 30 years will be.
3,898,051 SEK
But here I also want to give my own reflection. Selecting the 21 stocks with the highest dividend yield is probably not a good idea, at least not in Sweden. It probably works better in the US where, for example, the Dogs of the Dow strategy is popular. These tend to keep the dividend closer to their hearts and a dividend cut is less likely.
In Sweden, the risk of the dividend being dropped or at least being significantly reduced is much greater if you choose the ones that are the most decorated. The share price has already fallen, which is the reason for the high dividend yield. If the dividend is dropped, more people will want to leave and then there won’t be much left, after which the return as a whole will be smaller.
If we are going to get to the bottom of this, it is the case that companies with great quality and that have allocated a limited part of their cash flow to dividends have done the best. Here, they have reinvested their profits in their own company. It is not really something that dividend hunters want to hear, but it is also the truth. There are always some exceptions.
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