A 60-year-old newsletter strategy that still beats the market

An investment newsletter celebrating its 60th anniversary, Investment Quality Trends, has maintained a market-beating record for decades by focusing on dividend yields. Since 1986, its model portfolios have returned an annualized 11.4 percent, narrowly outpacing the 11.1 percent return of the Dow Jones U.S. Total Stock Market Total Return Index, according to Hulbert Ratings. The strategy has also achieved this with lower-than-market volatility.

"A clever accountant can make earnings appear good or not so good, depending on the season or the objective," the newsletter's late founder, Geraldine Weiss, wrote. "There can be no subterfuge about a cash dividend. It is either paid or it is not paid."

The newsletter’s unique approach, now managed by editor Kelley Wright, identifies undervalued blue-chip stocks when their dividend yield is near the high end of its historical range. Conversely, a stock is considered overvalued when its yield approaches its historic low. This leads to situations that may seem counterintuitive; for example, Wright currently sees healthcare provider Chemed (0.62% yield) as undervalued while considering mining giant Rio Tinto (3.99% yield) to be overvalued.

The effectiveness of this relative-yield strategy is stark when compared to high-yield-focused approaches like the "Dogs of the Dow." Since 2000, a portfolio of 13 stocks selected by Wright using his newsletter's methodology delivered an 11.2 percent annualized return. This significantly outperformed the 6.6 percent annualized return from the Dogs of the Dow strategy over the same period.

Adapting to Share Buybacks

As corporations increasingly favored share repurchases to return cash to shareholders, the classic dividend-focused model required an adjustment. Wright noted that he has tweaked the methodology to also favor stocks with healthy cash-flow yields. This helps identify companies with strong underlying revenue growth that can support future dividend increases, rather than those using buybacks to mask anemic performance. The adjustment appears successful, with the newsletter's model portfolios outperforming the market by a margin of 10.5 percent to 9.9 percent annually since the mid-1990s when buybacks became widespread.

The Relative Yield Indicator

The core principle remains that a stock's own dividend history is the best indicator of its current value. By tracking a blue-chip stock's yield over many years, an investor can establish clear "undervalued" and "overvalued" zones. A rising yield, often caused by a falling stock price, can signal a buying opportunity in a quality company, while a falling yield from a rising price can signal it's time to sell. This method avoids the trap of chasing high absolute yields, which may belong to companies in distress or those with unsustainable payout policies.

This article is for informational purposes only and does not constitute investment advice.