What is Sheard's criterion
Dividend strategy according to Robert Sheard (1): Turn 10,000 US dollars into 3.9 million US dollars in 26 yearsReading time: 3 minutes
Dividend strategy according to Robert Sheard: Get more profit with unequal weighting
The basic idea of Robert Sheard is simple: In the low-5 dividend strategy of O'Higgins he introduced weightings. He did not take over the 5 shares determined according to the O'Higgins strategy 1: 1 into his portfolio, but instead distributed the available amount of money unequally among the 5 shares.
Why? - Because he found that the shares of the O’Higgins dividend strategy performed completely differently. Shares that systematically and permanently achieved a lower performance in the Low-5 portfolio were bought less than those that achieved a good to very good performance.
As with O’Higgins, Sheard used the 10 stocks with the highest dividend yield as the basis of his dividend strategy and of these 10 the 5 stocks from the Dow Jones that had the optically lowest share price.
How Sheard came up with his dividend strategy
O'Higgins had observed that the lowest-priced stock performed very poorly on his dividend strategy. He suspected that the company must be fundamentally in a very bad position. The stock took more than 1 year to recover and develop further.
The share with the second-lowest share price, on the other hand, rose surprisingly well. Robert Sheard discussed in his book "The Unemotional Investor" about throwing the stock with the worst price out of the portfolio. And to give twice the weight to the stock with the second-lowest price.
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This resulted in the dividend strategy Low 4, because money was only invested in 4 stocks:
Sheard found that the lowest-price stock would only perform poorly if it also had the highest dividend yield of all 10 Dogs of the Dow stocks.
If that is the case, he did not even include the share in his portfolio. In return, the shares with the second and third-lowest price were given the same weight.
If the share with the optically lowest share price is not the one with the highest dividend yield, it is weighted in the dividend strategy according to Sheard in the same way as the share with the second-lowest price. Sounds a bit confusing, but the table clearly shows how the dividend strategy he called Low-2 works:
|50% or 0%|
0% or 50%
So there are always shares from 2 different companies in the portfolio, each weighted with 50%.
To further refine his dividend strategy, Sheard tried the variant of the low-1 strategy. As O’Higgins already noted in his dividend strategy, the share with the second-lowest price in terms of appearance performed best. Sheard invested 100% of the capital in this stock.
With the Sheard dividend strategy, as with all dividend strategies, the portfolio is reassembled once a year.
So what's the best of Sheard's dividend strategy?
25.81% annual return with Robert Sheard's dividend strategy!
Sheard back-tested all dividend strategies for 25 years. Here is the result:
|Time period||Low-1||Low-2||Low-3||Dow Jones 30th|
With the dividend strategy Low-2, Sheard managed to significantly improve the dividend strategy according to O’Higgins.
As you can see, the low-2 dividend strategy performs almost twice as well as the Dow-Jones index. Let's take a look at how your investment would have performed with the low-2 dividend strategy according to Robert Sheard, compared to the Dow-Jones index.
How $ 10,000 turned into $ 3.913 million
Take the 26 years that Sheard tested his dividend strategy and a one-time investment of $ 10,000. The custody account is adjusted annually according to the criteria and the compound interest effect is fully utilized. The results:
With the Dow Jones Index, you would have $ 257,026.35 in your account after 26 years. Based on your stake, you would have had a profit of 2,470.26%. Not bad.
With the low-2 dividend strategy according to Robert Sheard, exactly 3,913,760.28 US dollars!
A difference of $ 3,656,733.93 or 1,422.71% more profit than investing in the Dow Jones Index.
That would be 39,037.60% profit on your invested capital. Or 15.8 times more profit than with the Dow Jones.
Read in the 2nd part:
- Is the Robert Sheard dividend strategy associated with a higher risk?
- The most important dividend strategies in the hardship test: who wins?
- And the dividend strategy winner is?
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