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formerly Realindex Investments

Leader in active quantitative equities across Australian equities, global equities, emerging markets and global small companies.

Backed by a unique blend of research, portfolio construction and risk management, focused on uncovering original insights and translating them into investment strategies that are active and systematic, aiming to generate alpha.

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Price Effects during Dividend Periods: Alpha, Cash Flow and Tax

Does tilting towards dividend payments deliver excess returns? 

In an inflationary environment that is turning up the demand from income investors searching for dividend yield, Realindex considers the anomaly of the price of a dividend-paying stock drifting up prior to the dividend payment date and the ex-dividend price drop off.

Our finding? While large cap, high yield stocks remain popular there may be other opportunities to exploit. When constructing an income portfolio, there is more to consider than simply maximising dividends and franking. For example, our analysis suggests various ways to implement dividend run up as an alpha source to generate excess returns to the market:   

  • Both dividend run up and drop off effects are larger in small caps
  • Both high (good value) and low yield (more expensive) stocks show larger dividend run up than for intermediate yield firms
  • For low yield stocks, the drop off effect is smaller than intermediate and high yield stocks.

These features are worth considering for those investors seeking to maximise the dividend run up phenomenon. 

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