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From a total return perspective, there is an on-going debate among financial analysts as to which is the better strategy: (1) investing in high yield stocks or (2) investing in stocks with high dividend growth rates. Since stocks with high dividend growth rates also tend to be lower yielding stocks, the strategy debate is often more about low vs. high levels of yield. In this study I test several hypotheses: (1) low yield stocks outperform high yield stocks, (2) high dividend growth rate stocks outperform low dividend growth rate stocks, (3) high dividend growth rate stocks outperform high dividend yielding stocks. Using the S&P 500 as my sample universe, I sort the 500 stocks each year by dividend yield and the expected dividend growth rate one year ahead. Portfolios are constructed based on yield and dividend growth rate ranges. Yields, as an example, are divided into class intervals of 100 basis points i.e. 0-1%, 1-2%, 2-3%, up to 6-7%. Dividend growth rates are classified in a similar manner. Returns are developed for each portfolio tied to a class interval and then compared to each other as well as the benchmark S&P 500 on a year to year basis. Regression analysis will be used to test the above hypotheses with the b coefficients expected to be greater than zero and statistically significant at the 95% confidence level.

Publication Date


Project Designation

Independent Research

Primary Advisor

Trevor C Collier

Primary Advisor's Department

Economics and Finance


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