Barclay's Capital Analyst: Second 20% of Yield Stocks Do Better During Recessions

With investors seeking safety in high dividend yielding stocks, they are searching for names that will outperform the benchmark. And they generally do. However, the second 20% of yield stocks do even better during recessions, according to quantitative equity analyst Matthew Rothman, since the highest-yielding names often face sustainability issues.

The Barclays Capital analyst told clients that dividend omitting firms tend to sharply underperform in recessionary periods, averaging excess returns of -6.7% in the 12 months following the announcement. High quality names that also have high dividends (long opportunities) outperform by 5.9% annually, while low quality names with low yields (short opportunities) underperform by -9.9%.

Mr. Rothman said:

We view yield as a measure of value and not quality – it reflects how cheaply a stock is trading and has little to do with a company’s security or stablity.

As a result, he recommends investors look beyond names that simply have high yields.