How does dividend yield impact stock movements in a downturn? Which dividend stocks best survive turbulent markets?
To answer these and other related questions about performance in severe market downturns, stocks were screened and sorted based on their performances over the week-long downturn that lasted through August 9th, 2011. Over the course of this week, the S&P500 index dropped over 13.3% while the mean drop for a broader sample of 4541 equities was 10.1%, providing an opportunity to observe sector differences during extreme market drops.* These investigations found that the winning stocks featured primarily small caps, that utilities have proven to be the most resilient sector, and that the worst performing industry was Hotel/Motel REITs.
Analysis of dividend stocks reveals no significant relationship between performance in the drop and dividend yield. Across all stocks, less than 2% of the variance in performance is accounted for by dividend yield. A plot of the weekly performance vs. dividend yield for the highest dividend stocks demonstrates no clear relationship:
This result is consistent with the notion that dividend policy does not determine the safety of share prices in a downturn. Capital appreciation (or destruction) in a downturn cannot be determined by dividend policy.
However, by listing stocks with dividend yields higher than 10% by the greatest capital appreciation, we do notice that many mortgage REIT companies are at the top:
Ticker | Industry | Dividend Yield | % Weekly Gain | Beta |
REIT - Residential | 11.73% | 7.03% | ||
Mortgage Investment | 11.51% | 4.57% | 0.38 | |
REIT - Residential | 18.81% | 4.51% | ||
REIT - Diversified | 14.56% | 2.94% | 0.3 | |
REIT - Diversified | 18.32% | 2.42% | ||
REIT - Diversified | 13.89% | 1.27% | 0.26 | |
REIT - Diversified | 16.46% | 0.96% | 1.25 | |
REIT - Residential | 14.51% | 0.77% | 0.25 | |
REIT - Residential | 19.00% | 0.66% | 0.12 | |
Mortgage Investment | 14.93% | 0.39% | 0.45 | |
REIT - Diversified | 13.28% | -0.40% | 0.38 | |
Asset Management | 10.62% | -0.78% | 1.73 | |
Communication Equipment | 10.99% | -2.62% | 1.59 | |
REIT - Retail | 18.32% | -2.85% | 2.1 | |
Wireless Communications | 11.50% | -2.99% | 0.72 | |
Biotechnology | 10.27% | -3.47% | 0.54 | |
Asset Management | 12.76% | -4.12% | 1.48 | |
REIT - Healthcare Facilities | 11.72% | -4.21% | ||
Asset Management | 10.27% | -4.30% | 0.45 | |
Mortgage Investment | 21.08% | -4.98% | ||
Telecom Services - Foreign | 10.14% | -5.37% | 0.8 | |
Basic Materials Wholesale | 10.08% | -6.15% | 0.49 | |
Telecom Services - Domestic | 10.92% | -6.78% | 0.78 | |
Oil & Gas Drilling & Exploration | 10.03% | -9.16% | 0.95 | |
Diversified Investments | 10.02% | -9.36% | 1.13 | |
Shipping | 11.40% | -9.73% | 0.99 | |
Gas Utilities | 10.07% | -9.79% | 0.55 | |
Diversified Investments | 11.41% | -9.82% | ||
Telecom Services - Domestic | 12.59% | -10.95% | 0.74 | |
Diversified Investments | 10.08% | -11.64% | 1.86 | |
Independent Oil & Gas | 17.69% | -12.15% | ||
Foreign Regional Banks | 28.64% | -12.16% | 0.85 | |
Investment Brokerage - National | 10.01% | -12.16% | 1.48 | |
Wireless Communications | 12.99% | -12.37% | 0.56 | |
Asset Management | 14.97% | -12.78% | 0.78 | |
Grocery Stores | 50.23% | -12.97% | 1.08 | |
Oil & Gas Drilling & Exploration | 10.40% | -13.24% | ||
Shipping | 16.72% | -13.32% | 1.13 | |
Wireless Communications | 16.64% | -13.61% | 0.73 | |
Wireless Communications | 16.74% | -13.76% | 0.7 | |
Oil & Gas Drilling & Exploration | 10.16% | -14.03% | 0.85 | |
Shipping | 12.24% | -14.55% | 1.51 | |
Gas Utilities | 48.09% | -14.71% | 1.29 | |
Semiconductor Equipment & Materials | 10.12% | -14.73% | 1.1 | |
Credit Services | 14.00% | -14.90% | ||
Diversified Investments | 13.93% | -15.37% | 1.78 | |
REIT - Office | 10.52% | -15.99% | 1.59 | |
Foreign Regional Banks | 13.27% | -16.25% | 1.51 | |
Diversified Investments | 11.73% | -16.63% | 1.02 | |
Shipping | 13.61% | -16.74% | 1.27 | |
Shipping | 15.08% | -18.94% | 1.29 | |
Oil & Gas Refining & Marketing | 11.07% | -20.03% | 0.34 | |
Industrial Metals & Minerals | 10.68% | -20.97% | ||
Asset Management | 15.70% | -21.27% | 2.38 | |
REIT - Diversified | 11.01% | -22.59% | 0.85 | |
Waste Management | 11.52% | -27.16% | 1.88 | |
Oil & Gas Pipelines | 13.03% | -28.14% | 0.43 |
*Stocks with volumes under 5000 were excluded from the screen, since low liquidity makes them hard to trade. ETFs and other funds were also excluded. Mean sector performance, mean market cap, and mean beta were calculated from an equal-weighted average of stocks in that sector.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
