Principles of Building a High Dividend Portfolio on the Russian Stock Market

This paper investigates the effectiveness of dividend strategies on the four BRICS markets: Russia, India, South Africa and Brazil. The yield of portfolios with high, low and zero dividend yield was calculated for each market, as well as the corresponding benchmark yield. In addition, data were presented on the yield of the most effective mutual funds in each market, which can also serve as a benchmark for comparing the results of dividend strategies. To assess the likelihood of excess returns in each market the three-factor model and the CAPM model were applied and alpha coefficients were estimated. Finally, data on dividend yield for the four markets were pooled together to test "Dogs of the Dow" strategy with four dividend strategies based on it. The results of the study do not allow to make an unambiguous conclusion about the effectiveness of high dividend strategies on the BRICS markets. For all markets, the average annual yield exceeded the yield of the benchmark on the 10-year period (2005-2014). Alpha coefficients were positive for high dividend portfolios in all markets, except South Africa. For Russia, the high dividend portfolio’s alpha predicted in the CAPM model was 11% and alpha predicted in the three-factor model was 4%. These results were higher than those of the five mutual funds with the highest Sharpe ratio, which showed a negative alpha coefficient.