Table of Contents
High dividend yield, as the name suggests, refers to companies distributing higher profits to investors in cash dividends without a specific definition of what constitutes a high dividend. While high dividend yield may sound appealing at first glance, it’s essential to recognize that every investment has pros and cons. Before entering into high-dividend ETFs, it’s crucial to consider the following two points to evaluate the most suitable investment approach :
This article will select the top 5 popular high-dividend ETFs in the market as investment targets:
This article uses MacOS and VS code as the editor.
import os
import pandas as pd
tej_key = 'your key'
api_base = 'https://api.tej.com.tw'
os.environ['TEJAPI_KEY'] = tej_key
os.environ['TEJAPI_BASE'] = api_base
start = '2018-01-01'
end = '2023-12-31'
stock_list = ['0056', '00713', '00878', '00919', '00929', 'IR0001']
calendar_name = 'TEJ'
os.environ['mdate'] = start + ' ' + end
os.environ['ticker'] = ' '.join(stock_list)
!zipline ingest -b tquant
log_handler = FileHandler('log.txt',
format_string='[{record.time:%Y-%m-%d %H:%M:%S.%f}]: ' +
'{record.level_name}: {record.func_name}: {record.message}',
level=INFO)
log_handler.push_application()
log = Logger('Algorithm')Next, we are going to build the backtest environment. First, we could collect multiple targets’ quantitative indicators and price and volume data. In this case, we used it to obtain data on five High Dividend ETFs, which can avoid processing stocks that have yet to be listed.
The function below is essential for building a trading strategy. It will be called every day after the backtest starts. The main task of this article is to set an order equal to 25% of the current value of the investment portfolio.
def handle_data(context, data):
out_dir = pipeline_output('mystrats')
for asset in out_dir.index:
stock_position = context.portfolio.positions[asset].amount
if stock_position == 0:
order_percent(asset, 0.25)Next, we can start carrying out our trading strategy. Based on the set above, we execute the buy-and-hold of the High Dividend ETF. Set the trading period from start_date (2018-01-01) to end_date (2023-12-31) and use the data we collected earlier. The initial capital for the trading strategy is $1,000,000. The output results are a detailed list of daily performance and transactions.
log.txt records the information for each dividend received :
To further understand the performance of this strategy, we compared the cumulative returns of this strategy with the cumulative return of the benchmark index and visualized the results as follows:
The chart shows that the overall market has delivered a return of 2 times over the past five years. However, the return from buying and holding high-dividend ETFs slightly lags but still accumulates nearly a 2-fold return. Additionally, we notice that the volatility of the high-dividend ETF portfolio closely mirrors that of the overall market but with relatively more minor fluctuations. This suggests lower investment risk, as evidenced by the annualized volatility of 9.114% and the maximum drawdown of -16.382%. Furthermore, the Beta value of 0.43 indicates that the portfolio is less sensitive to changes in the overall market.
The chart shows that High Dividend ETFs yield more dividends under the same conditions during the backtesting period than Market Capitalization ETFs. It’s worth noting that four Market Capitalization ETFs are held for over 1000 days, while High Dividend ETFs have only three. Despite this, High Dividend ETFs still outperform Market Capitalization ETFs in dividends, indicating that High Dividend ETFs indeed deliver on their touted characteristic. For investors, High Dividend ETFs can provide more generous dividend returns during the holding period. This not only enhances the cash flow of the investment portfolio but also provides a certain level of stability during market volatility. This reflects that High Dividend ETFs typically include companies with robust financials that can regularly pay dividends. These companies often have strong profitability and cash flow, enabling High Dividend ETFs to maintain relatively stable performance during market downturns. This makes them suitable investment targets for long-term investors or those who prefer passive investing without closely monitoring the market.
In this exercise, we selected five High Dividend ETFs as investment targets and conducted a backtesting performance analysis using TQuant Lab. The backtesting results for these five High Dividend ETFs show favorable cumulative and annualized returns, reaching 94.373% and 12.129%, respectively. The annualized volatility and maximum drawdown are 9.114% and -16.382%, respectively, indicating that High Dividend ETFs have achieved steady returns while controlling risk. The Beta value suggests that they have exhibited relatively stable performance compared to the overall market and are less affected by market fluctuations.
However, the Sharpe Ratio and Alpha indicate that ESG ETFs have not generated excess returns. On the other hand, High Dividend ETFs offer a significant advantage in providing stable cash flow and higher dividend yields, especially under similar holding conditions. This reassures investors that they can rely on a consistent income stream, reflecting the fact that companies paying high dividends are often mature and may lack significant growth potential in the long term.
Overall, High Dividend ETFs are suitable for more conservative investors unwilling to take on high risks and not seeking short-term high profits. They might be a good choice if you aim to steadily receive dividends over the long term and accumulate passive income gradually.
Please note that the strategy and target discussed in this article are for reference only and do not constitute any recommendation for specific commodities or investments. In the future, we will also introduce using the TEJ database to construct various indicators and backtest their performance. Therefore, we welcome readers interested in various trading strategies to consider purchasing relevant solutions from TQuant Lab. You can construct a trading strategy that suits your needs with our high-quality databases.
“Taiwan stock market data, TEJ collect it all.”
The characteristics of the Taiwan stock market differ from those of other European and American markets, and the dynamics of retail investors are worth noting. Especially in the first quarter of 2024, with the Taiwan Stock Exchange reaching a new high of 20,000 points due to the rise in TSMC’s stock price, global institutional investors are paying more attention to the performance of the Taiwan stock market.
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