Building Dividend Smart Beta Portfolios with Yield and Quality Filters

Summary

The document outlines ways to construct an equity portfolio using dividend characteristics. One example selects stocks using forecast dividend yield, calculated from expected next dividends relative to price, then weights selected holdings by market capitalization. The forecasts are refreshed twice yearly in the index methodology described. A second ETF is mentioned as an example whose selection rules are proprietary, limiting the ability to study its construction from public composition data alone.

As a possible alternative, the answer suggests combining high dividend yield with a low or moderate payout ratio, since a high ratio may signal greater risk of a dividend cut. Long-term dividend growth is offered as another possible selection factor. These are examples and suggestions rather than a complete, tested portfolio process: the source gives no evidence of investment performance, detailed screening thresholds, rebalancing rules beyond the cited index example, or risk controls. It also distinguishes forecast dividends from historical payments, an important data choice when designing a dividend strategy.

Key ideas

• A dividend index can select stocks by forecast yield and weight them by market capitalization.
• The cited index refreshes its dividend forecasts twice yearly.
• A high payout ratio may indicate greater risk of a dividend cut.
• Dividend growth can complement yield and payout ratio as a selection factor.
• The proposed factor combinations are not accompanied by performance tests or a complete portfolio specification.

Tags

# How to build a portfolio following the Smart beta process by dividend?


# How to build a portfolio following the Smart beta process by dividend?












I'm having trouble finding the method to track smart beta dividend management. I have an Excel file which contains the prices and the dividends of certain companies, and I want to build a portfolio following the Smart beta process by dividend, I wonder please how to do it and where to start, step by step . thank you so much.

## Answer by nbbo2 (score 1)

https://quant.stackexchange.com/a/54897

I assume you are researching how quantitative dividend based portfolios are constructed.

One example is the ETF VYM (Vanguard High Dividend Yield ETF). It tracks the FTSE AW High Dividend Yield Index. The methodology document for this index shows that it is based on dividend forecasts (not actual dividends) provided by the company I.B.E.S.. These forecasts are downloaded twice a year. The stocks with the highest forecasted yield (D1/P0) are included in the index with a weight proportional to the stocks' market capitalization.

Another example is the Fidelity ETF FDVV. This one unfortunately is based on a proprietary methodology. Only the current composition is available.

There may be other cases out there. One approach I have heard of (but cannot find online) is to combine a high current dividend yield with a low or moderate payout ratio (because if the Payout Ratio = Dividends per Share/Earnings per Share is high the company may cut its dividend soon). A third factor sometime included is the long term dividend growth rate (a higher rate is considered better).

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.