- Investing Strategy -
Dividend Yield and Income Investing

Using a dividend yield investing strategy as a sample strategy was not part of my plan for this site. However, in response to a request to make a presentation on the topic, I came to realize what a powerful strategy it can be. Both as part of a portfolio of strategies or as part of a core investment/retirement plan.

As part of our process to create personal investment strategies, we will once again stand on the shoulders of an investing legend - Geraldine Weiss. Often referred to as "The Grand Dame of Dividends", she is the founder of the advisory newsletter, Investment Quality Trends, and co-author of 2 books.

The Weiss Approach

As you can image, dividends are a core component of the strategy. Not only as yield, but growth and stability as well.

But it is not just about dividends. Overall, the components as described by Weiss are:

  • Universe - Only US Blue Chip companies are considered
  • Value - Undervalued with respect to high historical average dividend yield
  • Growth - Dividend growth should exceed 10%
  • Financial Strength

There are 3 financial strength ratios:

  1. Debt to equity < 20% (50% for utilities)
  2. Payout ratio (dividends to earnings) < 50%
  3. Current ratio (assets to liabilities) > 2

Over time, Weiss recommends creating a portfolio of about 20 companies.

She is not a proponent of buy and hold forever but expects to hold a company for 3 years on average. Unusual for a published strategy, reasons to sell are explicit and stocks in the portfolio are examined regularly:

  1. Dividend cut - this is an immediate sell. Cutting a dividend is inexcusable in this approach
  2. Yield approaches the historical low average (i.e., the stock is now overvalued with respect to dividend yield)
  3. Financial strength weakens - this is not as strictly enforced as the first 2 selling rules, but followed carefully.

Weiss Blue Chip Universe

Blue Chip is a reference to the quality of the universe of acceptable companies. This will be the most difficult part of the strategy to implement dynamically with stock screening tools, but there are several static lists which can be accessed without charge.

The rules:

  • Growth: Dividend increases in 5 of last 12 years 
  • At least 5 million shares outstanding
  • Sentiment: At least 80 institutional shareholders but this was not a hard & fast rule. This can be addressed by ranking the companies meeting other criteria
  • Growth: EPS increases in at least 7 of the last 12 years
  • Quality: Dividends paid for at least 25 successive years, aka Dividend Champions 
  • Sentiment: S&P A rating (i.e., A-, A, or A+). This is probably not going to be available in retail level screeners

Dividend Champions are companies paying dividends for at least 25 years. While this is beyond the historical data available in most screeners, a list of these companies (and companies with less impressive dividend histories) are readily available online. To use these companies in a screener, simply download the list from one of the online sources and then upload to your screener.

You can get the list at Drip Investing or do an internet search for Dividend Champions to check other sources.

Once you decide how to move forward with the universe, everything else is very straightforward.

Existing Implementations

At least one screener, AAII Stock Investor Pro, has an existing implementation of the Weiss Dividend Investing Strategy. The primary deviation from the "pure" strategy is the Blue Chip universe. Not enough historical data is available in the SI Pro database and neither are the S&P ratings.

AAII Stock Investor Weiss Dividend Screen Historical Performance 1/1/98 through 12/31/16Performance as of 12/31/2016

If you are an AAII member, you can login and examine their discussion of the strategy as well as the performance chart from 1998. Otherwise, you will only be able to see the performance numbers shown to the right.

While this may not seem like dazzling performance, it is very good considering the AAII performance numbers are created by running a screen at the end of every month and calculating the total return for the month as the average of the performance of each company passing the screen.

Keep in mind that SI Pro will screen against a portfolio so you would be able to upload a list of Dividend Champions (or any custom list of companies). Once the portfolio is uploaded, modify the AAII pre-built screen to remove the rules pertaining to the universe.

Weiss Investing Strategy Key

One of the unique features of the Weiss dividend investing strategy approach is the use of average historical high and low yield to identify value. Either of the Weiss books listed in the bibliography below is loaded with price charts of companies used as examples of their analysis. Every chart has an upper limit and a lower limit which represents the buy range and sell range in terms of yield. Below is a graphic representation from an AAII article discussing the strategy.

AAII graphic representation of Weiss historical average yield plus formulas.AAII graphic representation of Weiss historical average yield

Other Considerations

Although dividend investing is one of the most mature strategies, a variation was introduced that considered more than just the dividend. Net payout yield (aka shareholder yield) is the ratio of the net payout per share as a percentage of the stock price. Net payout is the amount a company spends on purchasing its own stock and paying dividends less the amount received from issuing new stock.

There are (at least) 3 distinct schools of thought regarding a dividend investing strategy:

  1. Total return is the primary consideration. Shareholder yield is heresy.
  2. Total return is the primary consideration. Both shareholder yield and dividend yield are embraced.
  3. Income only. Total return is a minor consideration at best. Shareholder yield is not a consideration.


With an understanding of the strategy, the next step is to put together an implementation plan that matches your needs and availability.

NEXT: Implementing the Dividend Yield investing strategy


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Dividend Investing Strategy Bibliography

The following books are focused on dividend yield and income investing. The books by Kelley Wright (current manager of the Weiss newsletter) and Weiss are the core books. The others represent other views and some variations in the screening criteria.

Miller, Bruce. Retirement Investing for Income ONLY: How to manage a retirement portfolio ONLY for reliable, long term Income

Peters, Josh. The Ultimate Dividend Playbook: Income, Insight and Independence for Today's Investor

Weiss,Geraldine and Weiss,Gregory. The Dividend Connection: How Dividends Create Value in the Stock Market

Weiss,Geraldine and Lowe, Janet. Dividends Don't Lie: Finding Value in Blue-Chip Stocks

Wright, Kelley. Dividends Still Don't Lie: The Truth About Investing in Blue Chip Stocks and Winning in the Stock Market

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Feb 2017