Investors selecting funds based on dividend yield should be aware that high yield is no assurance of higher expected return. Plotting 10-year annualized returns vs. average dividend yield for US large cap equity funds shows no meaningful relation between the two. Many of the best-performing funds in the category had below-average yields. And funds specifically targeting high yield can be found on both ends of the return spectrum.
A stock’s total return comprises both capital appreciation and dividends. Emphasizing only one component may reduce diversification and, as the data show, may not increase your expected return.
Exhibit 1 – Yield Sign
Annualized return vs. average dividend yield for US large cap equity funds, January 2014–December 2023
Past performance is not a guarantee of future results.
Source: Dimensional, using data from Morningstar. Sample includes US-domiciled, USD-denominated funds in the Morningstar Large Blend category. Funds with multiple share classes are represented by their oldest share class. Surviving funds with 10 years of returns and 10 years of dividend yield history are included. Data as of December 31, 2023. Data sourced from Morningstar on February 28, 2024.
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