Remembering Geraldine Weiss and Her Winning Dividend Strategy
by Charles Rotblut | April 28, 2022
Geraldine Weiss—the grande dame of dividends—died on Monday, April 25. She was 96.
Though my colleagues here at AAII have written and spoken about her strategy many times over the years, I’ll admit to not being aware of what a trailblazer Weiss was. As Mark Hulbert explained on MarketWatch several years ago, Weiss first penned her newsletter Investment Quality Trends under the name of G. Weiss in 1966. Most subscribers had no idea that the “G” stood for Geraldine as opposed to, say, Gerald, George or Greg until Weiss made an appearance on “Wall Street Week with Louis Rukeyser” in 1977.
Unlike the financial industry at the time, the market was—and continues to be—agnostic about gender. Weiss proved this with her strategy. Our Weiss Blue Chip Dividend Yield screen has the 10th lowest risk index out of the 60 stock screens available to AAII members, yet it has beaten the S&P 500 index since its inception in 1988 (9.4% versus 6.3% annualized). The margin of outperformance would be even larger if we factored dividend payments into the performance calculations of our stock screens. (The screen is based on her 1988 book “Dividends Don’t Lie.”)
Weiss’ approach also influenced our thinking when we launched our Dividend Investing newsletter in 2012. Her use of yield as a valuation indicator and requirements for both dividend growth and strong underlying fundamental quality continue to underlie the DI approach.
A key to understanding Weiss’ strategy is recognizing a stock’s price as being driven by its dividend yield. Weiss believed that value investors are drawn to stocks with high yields. As investors begin purchasing shares, the dividend yield’s denominator (price) increases, pushing the ratio lower. Once the price appreciation causes the yield to decline, investors begin to sell the stock because it is no longer an attractive investment on a dividend-yield basis. The downward pressure on the share price from investors exiting the stock pushes the dividend yield higher once more, making it an attractive purchase for value investors seeking yield. Value investors become enticed by the opportunity to realize a higher stream of cash payments relative to the price paid.
When a stock’s dividend yield is at or above its historical average high, it’s time to buy. When a stock’s dividend yield is equal to or below its historical average low, it’s time to sell.
Because price appreciation, dividend growth and yield are not guaranteed over time, Weiss used additional metrics to separate the worthy investments from the unworthy. One of these was a preference for blue-chip stocks.
To determine which stocks were blue chips, Weiss outlined the following metrics: the dividend yield has been raised at least five times in the past 12 years; earnings have improved in at least seven of the last 12 years; there have been at least 25 years of uninterrupted dividends; at least five million shares are outstanding; at least 80 institutions hold the stock; and the stock carries an S&P ranking of “A” or higher.
Besides seeking quality blue chips trading with dividend yields at or above their historical averages, Weiss also considered fundamental metrics. She wanted to ensure the security of the dividend payment via the payout ratio and sought out strong financial positions as determined by the current ratio and the debt-to-equity ratio. Weiss also preferred a stock’s price-earnings (P/E) ratios to be below its historical average low. She was, however, willing to accept higher price-earnings ratios if a company had a consistent record of rising earnings that were advancing faster than the market average.
Our Dividend Investing approach shares similarities with Weiss’ approach, though we also incorporated concepts from other dividend and non-dividend strategies. For instance, the DI approach considers companies with much shorter periods of dividend growth. Our reasoning is that some companies implementing a dividend within the last five years could potentially have higher dividend growth than some of the longer-term dividend bellwethers. We also consider stocks that aren’t blue chips as there can be opportunities beyond the well-known names. Our measure of quality is slightly different as well. But the fact that there are more similarities than differences speaks to the positive and lasting influence of Geraldine Weiss.
- We discussed Geraldine Weiss’ dividend approach to blue-chip stocks in greater detail in this 2016 AAII Journal article.
- Here’s our Weiss Blue Chip Dividend Yield screen.
- Our Dividend Investing model portfolio holds 24 stocks and has consistently realized an above-market yield.
- In her latest My Investing Discoveries blog post, AAII assistant editor Anine Sus shares her takeaways from Daniel Crosby’s “The Behavioral Investor.”
- The next episode of the Individual Investor Show will be available on YouTube and popular podcast platforms, including Audible.com, next Thursday afternoon. We’ll explain how to incorporate environmental, social and governance (ESG) strategies into your portfolio.
- The final step of the PRISM Wealth-Building Process is effectively monitoring your portfolio. It is designed to help you view your portfolio within the context of your goals, desired allocation and current stage of life. Complete Lesson 1 today.
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AAII Sentiment Survey
The percentage of individual investors describing their six-month outlook for stocks as “bearish” surged to its highest level since 2009 in the latest AAII Sentiment Survey. At the same time, optimism remains at an unusually low level.
Bullish sentiment, expectations that stock prices will rise over the next six months, decreased by 2.4 percentage points to 16.4%. This is just the 35th time in the history of the survey that bullish sentiment is below 20%. (The survey was started in 1987.) Optimism is below its historical average of 38.0% for the 23rd consecutive week and is at an unusually low level (below 27.9%) for the 13th time out of the last 16 weeks.
Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, fell by 13.1 percentage points to 24.2%. The drop puts neutral sentiment below its historical average of 31.5% for the first time six weeks.
Bearish sentiment, expectations that stock prices will fall over the next six months, rose sharply by 15.5 percentage points to 59.4%. Pessimism was last higher on March 5, 2009 (70.3%). This is the fourth consecutive week and the 22nd time out of the last 23 that bearish sentiment is above its historical average of 30.5%. It is also the 12th time out of the last 15 weeks with an unusually high level of pessimism.
This week’s bearish sentiment reading ranks among the 10th highest in the history of the survey. This week’s bull-bear spread (bullish minus bearish sentiment) of –42.9% is the sixth most negative it has ever been.
Historically, the S&P 500 index has gone on to realize above-average and above-median returns during the six- and 12-month periods following unusually low readings for bullish sentiment and for the bull-bear spread. Unusually high bearish sentiment readings historically have also been followed by above-average and above-median six-month returns in the S&P 500.
The ongoing invasion of Ukraine by Russia, stock market volatility, inflation, interest rates, the coronavirus pandemic and politics are all influencing individual investors’ outlook for stocks. Other factors include the economy and corporate earnings.
For this week’s special question, we asked AAII members to share their thoughts on the ongoing volatility in the Nasdaq composite this year.
Slightly more than two out of five respondents (41%) view the volatility from a bearish lens. They believe volatility will continue as long as global factors such as the coronavirus pandemic and the Russia-Ukraine conflict occur. About 20% of respondents say that the volatility was expected and the Nasdaq was due for a correction.
Conversely, approximately 11% have a bullish outlook regarding the volatility and the factors impacting it. Roughly 8% of respondents say that the Nasdaq’s volatility presents them with buying opportunities. Finally, 8% of respondents mention high valuations as the cause of the Nasdaq’s volatility.
Here is a sampling of the responses:
- “The prospect for higher interest rates, higher inflation, continued supply chain problems, labor shortages and international strife will all continue to weigh on the economy.”
- “We’ve seen it before, and I am staying focused on the long term. Counting my dividend income helps me through times like these.”
- “Don’t be scared; the U.S. will get through these tough times alright.”
- “Some great buying opportunities.”
- “The Nasdaq is overvalued. Rising interest rates makes speculation in Nasdaq stocks riskier.”
Bullish: 16.4%, down 2.4 points
Neutral: 24.2%, down 13.1 points
Bearish: 59.4%, up 15.5 points
Bullish: 38.0%
Neutral: 31.5%
Bearish: 30.5%
See more Sentiment Survey results.
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