Dividend Investing Using “Big Safe Dividends” to Build Equity Portfolios in Brazil

Viana, Dêner Matheus da Silva; Lima, Lauro Vinício de Almeida; Martins, Orleans Silva

doi:10.7819/rbgn.v26i02.4262

Dêner Matheus da Silva Viana

definition of research problem

development of hypotheses or research questions (empirical studies)

development of theoretical propositions (theoretical work)

definition of methodological procedures

data collection

literature review

statistical analysis

analysis and interpretation of data

critical revision of the manuscript

manuscript writing

Mestre em Ciências Contábeis, Universidade Federal da Paraíba, João Pessoa, PB, Brasil. Master in Accounting, Federal University of Paraiba, João Pessoa, PB, Brasil.

Universidade Federal da Paraíba, Programa de Pós-Graduação em Ciências Contábeis, João Pessoa, PB, Brasil

https://orcid.org/0000-0003-0901-4292

Lauro Vinício de Almeida Lima

definition of research problem

development of hypotheses or research questions (empirical studies)

development of theoretical propositions (theoretical work)

definition of methodological procedures

data collection

literature review

statistical analysis

analysis and interpretation of data

critical revision of the manuscript

manuscript writing

Doutor em Ciências Contábeis, Universidade Federal da Paraíba, João Pessoa, PB, Brasil.PhD in Accounting, Federal University of Paraiba, João Pessoa, PB, Brasil.

Universidade Federal da Paraíba, Programa de Pós-Graduação em Ciências Contábeis, João Pessoa, PB, Brasil

https://orcid.org/0000-0001-5474-5655

Orleans Silva Martins

definition of research problem

development of hypotheses or research questions (empirical studies)

development of theoretical propositions (theoretical work)

definition of methodological procedures

data collection

literature review

statistical analysis

analysis and interpretation of data

critical revision of the manuscript

manuscript writing

Pós-Doutor em Ciências Contábeis, Universidade Federal da Paraíba, João Pessoa, PB, Brasil Post-Doctorate in Accounting, Federal University of Paraiba, João Pessoa, PB, Brasil.

Universidade Federal da Paraíba, Programa de Pós-Graduação em Ciências Contábeis, João Pessoa, PB, Brasil

https://orcid.org/0000-0002-4966-0347

Responsible editor:

Prof. Dr. Maria-Celia López-Penabad

Reviewers:

Nelson Hein; Alejandro J. Useche; The other reviewer preferred not to disclose his name

Conflicts of interest:

The authors have no conflicts of interest to declare.

E-mail: denerppgcc@gamil.com

E-mail: lvinicio2@gmail.com

E-mail: orleansmartins@yahoo.com.br

Indicator (Weight)	Formula	Description
Payout Ratio (30%)	$\frac{D i v i d e n d P a i d_{i t}}{N e t P r o f i t_{i t}}$	The ratio of dividend paid to net income of firm i in year t.
Interest Coverage (10%)	$\frac{E B I T_{i t}}{F i n a n c i a l E x p e n s e s_{i t}}$	The ratio of EBIT to financial expenses of firm i in year t.
Cash Flow to Net Income (5%)	$\frac{O p e r a t i n g C a s h F l o w_{i t}}{N e t P r o f i t_{i t}}$	The ratio of operating cash flow to net income of firm i in year t.
Dividend Yield (5%)	$\frac{D i v i d e n d P a i d p e r S h a r e_{i, t}}{S t o c k P r i c e_{i, t - 1}}$	*The ratio of the dividend paid by stock i in year t to the stock price at the end of year t-1.*
Relative Performance (10%)	$\frac{μ (R_{i t})}{μ (R m_{t})}$	The ratio of the average stock returns of firm i over the last 12 months to the average Ibovespa returns over the last 6 months.
Variation in Tangibles and Intangibles (10%)	$\frac{(T A_{t} - T A_{t - 1}) + (I A_{t} - I A_{t - 1})}{T o t a l A s s e t_{t - 1}}$	*The ratio of the change in tangible (TA) and intangible (IA) assets between years t-1* and t to the total assets in year t-1 for firm i.**
Cash Flow Growth (5%)	$\frac{O p e r a t i n g C a s h F l o w_{i t}}{O p e r a t i n g C a s h F l o w_{i, t - 2}} - 1$	*The ratio of the operating cash flow in year t to the operating cash flow in year t-2* for firm i.**
Dividend Growth (10%)	$\frac{D i v i d e n d P a i d_{i t}}{D i v i d e n d P a i d_{i, t - 2}} - 1$	*The ratio of the dividend paid in year t to the dividend paid in year t-2* for firm i.**
Earnings Growth (15%)	$\frac{N e t P r o f i t_{i t}}{N e t P r o f i t_{t - 2}} - 1$	*The ratio of the net income in year t to the net income in year t-2* for firm i.**

Panel A: Statistics	Mean	Median	SD	Min	Max	Sharpe
Rank10	11.68%	8.30%	26.20%	-39.75%	108.52%	0.14
Rank15	14.78%	13.10%	24.57%	-29.02%	92.57%	0.48
Rank20	13.29%	7.85%	24.42%	-30.68%	93.15%	0.11
RankBSD	11.11%	6.27%	22.34%	-27.57%	68.46%	-0.01
IBOV	5.56%	1.16%	18.53%	-24.64%	60.03%	-0.24
IDIV	11.38%	10.99%	22.48%	-41.88%	92.64%	0.11
IBrX	7.87%	3.66%	17.26%	-23.02%	62.17%	-0.17
IGC	8.66%	5.90%	16.49%	-26.03%	64.74%	-0.04
Panel B: Differences in Mean Returns			IBOV	IDIV	IBrX	IGC
Rank10			6.12%***	0.30%	3.80%	3.02%
Rank15			9.22%***	3.40%	6.90%***	6.12%**
Rank20			7.73%***	1.91%	5.41%**	4.62%**
RankBSD			5.56%**	-0.27%	3.24%	2.45%
Panel C: Portfolios that Beat Benchmarks			IBOV	IDIV	IBrX	IGC
Rank10			66.21%	46.21%	60.69%	61.38%
Rank15			68.97%	63.45%	66.21%	66.21%
Rank20			66.90%	56.55%	62.76%	64.14%
RankBSD			68.28%	52.41%	61.38%	57.93%

Metrics	Rank_10	Rank_15	Rank_20	RankBSD	IBOV	IDIV	IBrX	IGC
Return	11.68%	14.78%	13.29%	11.11%	5.56%	11.38%	7.87%	8.66%
Alpha (Jensen)	6.66%	9.40%	8.00%	5.64%	-	5.62%	2.02%	2.54%
Volatility	22.57%	20.74%	20.52%	21.25%	21.44%	21.04%	20.23%	19.04%
Standard Deviation	15.55%	14.33%	14.53%	12.91%	12.01%	13.58%	11.64%	13.58%
Tracking Error	1.62%	2.14%	1.71%	1.33%	-	0.72%	0.34%	0.47%
Sharpe Ratio	-0.3089	-0.0596	-0.2127	-0.3038	-0.4239	-0.1083	-0.1750	-0.1903

Portfolio	Rank10		Rank15		Rank20		RankBSD
Model	1	2	1	2	1	2	1	2
Alpha	0.0004***	0.0004**	0.0005***	0.0004***	0.0005***	0.0004***	0.0004***	0.0004***
	(0.0000)	(0.0000)	(0.0000)	(0.0000)	(0.0000)	(0.0000)	0.0001	(0.0001)
(MKT-R_f)	0.8989***	0.8017***	0.8663***	0.8275***	0.8506***	0.8146***	0.9621***	0.9386***
	(0.0160)	(0.0170)	(0.0120)	(0.0140)	(0.0110)	(0.0130)	0.0090	(0.0100)
HML	0.0190	0.0457***	0.0079	0.0192	-0.0132	-0.0079	-0.0398***	-0.0341***
	(0.0150)	(0.0160)	(0.0110)	(0.0120)	(0.0100)	(0.0110)	0.0090	(0.0090)
SMB	0.2276***	0.1959***	0.2291***	0.2217***	0.2265***	0.2207***	0.2133***	0.1969***
	(0.0210)	(0.0220)	(0.0170)	(0.0190)	(0.0160)	(0.0170)	0.0150	(0.0160)
WML	-0.0372***	-0.0494***	-0.0344***	-0.0362***	-0.0269***	-0.0263***	-0.0266***	-0.0265***
	(0.0110)	(0.0120)	(0.0090)	(0.0100)	(0.0080)	(0.0090)	0.0070	(0.0080)
IML	0.2259***	0.1658***	0.1665***	0.1346***	0.1716***	0.1389***	0.1779***	0.1529***
	(0.0260)	(0.0260)	(0.0200)	(0.0200)	(0.0180)	(0.0180)	0.0170	(0.0170)
D_(Covid-19)		0.0006		0.0004		0.0002		0.0001
		(0.0000)		(0.0000)		(0.0000)		(0.0000)
D*(MKT-R_f)		0.2067***		0.0821***		0.0764***		0.0412**
		(0.0290)		(0.0300)		(0.0260)		(0.0190)
D*HML		-0.0624		-0.0306		0.0007		-0.0178
		(0.0400)		(0.0300)		(0.0290)		(0.0290)
D*SMB		0.0863		-0.0094		-0.0137		0.0360
		(0.0630)		(0.0460)		(0.0440)		(0.0410)
D*WML		0.0395*		0.0026		-0.0075		-0.0031
		(0.0230)		(0.0180)		(0.0170)		(0.0160)
D*IML		0.1458*		0.1239*		0.1237**		0.1011*
		(0.0004)		(0.0630)		(0.0590)		(0.0560)
R²	0.683	0.693	0.767	0.769	0.793	0.795	0.866	0.867
Adjusted R²	0.683	0.692	0.767	0.768	0.792	0.794	0.865	0.867
F-Test	768***	474***	1,267***	602***	1,321***	668***	2,538***	1,349***
Observations	3,199	3,199	3,199	3,199	3,199	3,199	3,199	3,199

Portfolio	( $I B O V - R_{F}$ )		( $I D I V - R_{F}$ )		( $I B R x 100 - R_{F}$ )		( $I G C - R_{F}$ )
Model	1	2	1	2	1	2	1	2
Alpha	-0.0001	-0.0001	-0.0001	0.0001	0.0001	0.0001	0.0000	0.0001
	(0.0001)	(0.0000)	(0.0001)	(0.0001)	(0.0000)	(0.0000)	(0.0001)	(0.0001)
(BSD-R_f)	0.9230***	0.8919***	0.8996***	0.8559***	0.8111***	0.8028***	0.8962***	0.8504***
	(0.0150)	(0.0120)	(0.0160)	(0.0120)	(0.0130)	(0.0180)	(0.0180)	(0.0110)
HML	0.1389***	0.1558***	0.1139***	0.1244***	0.1767***	0.1933***	0.0495***	0.0536***
	(0.0110)	(0.0100)	(0.0110)	(0.0100)	(0.0160)	(0.0170)	(0.0110)	(0.0100)
SMB	-0.1444***	-0.1241***	-0.1784***	-0.1633***	-0.1089***	-0.1083***	-0.1173***	-0.0947***
	(0.0160)	(0.0160)	(0.0160)	(0.0150)	(0.0170)	(0.0190)	(0.0160)	(0.0140)
WML	-0.0053	-0.0184**	0.0205***	0.0088	0.0019	0.0070	0.0483***	0.0408) ***
	(0.0080)	(0.0090)	(0.0070)	(0.0080)	(0.0110)	(0.0140)	(0.0070)	(0.0080)
IML	-0.2992***	-0.2987***	-0.2574***	-0.2655***	-0.1545***	-0.1618***	-0.1966***	-0.2036***
	(0.0170)	(0.0180)	(0.0160)	(0.0160)	(0.0210)	(0.0230)	(0.0160)	(0.0160)
D_(Covid-19)		-0.0004		-0.0005		-0.0005		-0.0004
		(0.0000)		(0.0000)		(0.0000)		(0.0000)
D*(BSD-R_f)		0.0873***		0.1138***		0.0144		0.1260***
		(0.0280)		(0.0280)		(0.0270)		(0.0300)
D*HML		-0.0611*		-0.0174		-0.0853**		0.0256
		(0.0340)		(0.0330)		(0.0430)		(0.0310)
D*SMB		-0.0839*		-0.0569		-0.0254		-0.0777*
		(0.0450)		(0.0460)		(0.0440)		(0.0470)
D*WML		0.0518***		0.0431**		-0.0195		0.0246
		(0.0170)		(0.0180)		(0.0210)		(0.0190)
D*IML		-0.0215		-0.0160		0.0674		-0.0439
		(0.0620)		(0.0610)		(0.0600)		(0.0610)
R²	0.871	0.873	0.877	0.880	0.800	0.801	0.861	0.866
Adjusted R²	0.871	0.873	0.877	0.880	0.800	0.801	0.861	0.865
F-Test	1,711***	1,275***	1,470***	1,241***	1,124***	549***	989***	986***
Observations	3,199	3,199	3,199	3,199	3,199	3,199	3,199	3,199

\begin{array}{l} R_{B S D t} = α + β_{1} (M K T_{t} - R_{F t}) + β_{2} S M B_{t} + β_{3} H M L_{t} + β_{4} W M L_{t} + \\ β_{5} I M L_{t} + β_{6} D_{t} + β_{7} (D_{t} \times (M K T_{t} - R_{F t})) + β_{8} (D_{t} \times S M B_{t}) + \\ β_{9} (D_{t} \times H M L_{t}) + β_{10} (D_{t} \times W M L_{t}) + β_{11} (D_{t} \times I M L_{t}) + ε_{t} \end{array}

\begin{array}{l} R_{I B O V t} = α + β_{1} (R_{B S D t} - R_{F t}) + β_{2} S M B_{t} + β_{3} H M L_{t} + \\ β_{4} W M L_{t} + β_{5} I M L_{t} + β_{6} D_{t} + β_{7} (D_{t} \times (R_{B S D t} - R_{F t})) + \\ β_{8} (D_{t} \times S M B_{t}) + β_{9} (D_{t} \times H M L_{t}) + β_{10} (D_{t} \times W M L_{t}) + \\ β_{11} (D_{t} \times I M L_{t}) + ε_{t} \end{array}

[1] Responsible editor:

Prof. Dr. Maria-Celia López-Penabad

Brasil

Brasil

Dividend Investing Using “Big Safe Dividends” to Build Equity Portfolios in Brazil

Abstract

Purpose

Theoretical framework

Design/methodology/approach

Findings

Practical & social implications of research

Originality/value