SOURCE: Heartland Advisors

Heartland Advisors

November 18, 2013 08:55 ET

New Study Shows High-Yielding International Stocks Have Outperformed Their Peers

Heartland Advisors Issues Study on Small and Mid-Cap International Equities Titled "The Role Dividends Can Play in International Equity Investing"

MILWAUKEE, WI--(Marketwired - November 18, 2013) -  Dividends matter for international investors. A recent study by Robert Sharpe of Heartland Advisors and G. Kevin Spellman, CFA, of the University of Wisconsin-Milwaukee quantifies the significant impact of dividends on international investing returns. Spellman is Director of Investment Management Certificate Program at UW-Milwaukee. Sharpe is co-portfolio manager of the Heartland International Value Fund (NASDAQ: HINVX), which marked the three-year anniversary of its launch on October 1 and invests in small and mid-cap dividend-paying companies.

In the study of small and mid-cap international companies titled "The Role Dividends Can Play in International Equity Investing," Sharpe and Spellman write:

"Domestic equity investors have long understood the importance of dividends. Particularly when the U.S. economy is experiencing slower long-term growth, dividends can make a substantial contribution to total return. Many investors seem not to have noticed that dividends can play at least as important a role on a global scale. There may be an assumption that higher capital appreciation potential makes the dividend policy irrelevant."

Sharpe and Spellman's analysis demonstrates that dividend-yielding stocks can make a meaningful contribution to a portfolio and higher returns are not always associated with higher risk.

The study focused on foreign equity securities with market capitalizations ranging from $100 million to $5 billion over the time period 12/31/1993 through 6/28/2013. Sharpe and Spellman divided these stocks into five quintiles, with Quintile 1 made up of the highest-yielding names and Quintile 5 the lowest.

The average 12-month return for stocks in Quintile 1 was over 16 percentage points higher than for Quintile 5 and more than 10 percentage points higher than for the universe as a whole.

The following table displays the average 12-month returns for each quintile together with other measures of risk and return. On average, returns for Quintile 1 demonstrated slightly higher variability (standard deviation) than mid-level payers but significantly less than the lowest-payers. The Sharpe Ratio (a combined measure of risk and return) for Quintile 1 was significantly higher than all other quintiles, at 0.55 compared to 0.13 for the universe as a whole.

Quintile   12-month Returns   Standard Deviation   Beta   Sharpe Ratio   Information Ratio   Median Yield
Universe   6.05%   24.34%
Quintile 1 (Highest Payers)   16.31   24.45   0.94   0.55   1.10   5.31
Quintile 2   11.06   22.03   0.87   0.37   0.63   2.75
Quintile 3   4.89   21.78   0.87   0.09   -0.33   1.56
Quintile 4   -1.53   25.13   0.96   -0.18   -0.82   0.82
Quintile 5 (Lowest Payers)   -0.15   30.89   1.25   -0.10   -0.57   0.00
Source: FactSet Research Systems, Inc., 12/31/1993 to 6/28/2013, based on Average 12-Month Forward Rolling Returns
Beta and Information Ratio calculated vs. the dataset universe.
Past performance does not guarantee future results.

In addition to overall returns, Sharpe and Spellman examined more specific performance characteristics relating to industry sectors and market cycles. They also recommend applying additional value-oriented criteria with a focus on dividend-paying stocks:

"The data illustrates that adding low P/B, high dividend growth, or low payout to the selection criteria in each case appears to improve the model over a dividend yield only approach. These are certainly not the only quantitative screens that can be used, but they aptly illustrate that the employment of a combination of factors may have an even greater potential to outperform than using the dividend component alone."

To download a copy of the full study, visit

About Heartland
Established in 1983, Heartland Advisors, Inc. is an independently owned equity value investment manager based in Milwaukee, Wisconsin. As of September 30, 2013, the Firm managed approximately $5.8 billion. The Heartland family of value-driven, actively managed portfolios includes distinct U.S. and international strategies, offered through five separately managed account portfolios and four mutual funds: Heartland Value Fund (NASDAQ: HRTVX), Heartland Value Plus Fund (NASDAQ: HRVIX), Heartland Select Value Fund (NASDAQ: HRSVX), and Heartland International Value Fund (NASDAQ: HINVX). Learn more at

This study utilizes data sourced from the FactSet Fundamentals global database from 12/31/1993 through 6/28/2013. Statistical tests were run in FactSet Alpha Testing software. Stocks with dividend yields above 100% were classified as not available. In total, there were 558,381 possible data items. Companies in the resulting data set were grouped into five quintiles based on dividend yield, and rebalanced every three months. Dividend yield was calculated as annual dividends divided by the current share price. Equal-weighted returns for each quintile and the universe were computed for three, six, twelve, twenty-four, and thirty-six months.

Data Sourced from FactSet: Copyright 2013 FactSet Research Systems Inc, FactSet Fundamentals. All rights reserved.

An investor should consider the Funds' investment objectives, risks, and charges and expenses carefully before investing or sending money. This and other important information can be found in the Funds' prospectuses. To obtain a prospectus, please call 800-432-7856 or visit Please read the prospectuses carefully before investing.

Past performance does not guarantee future results.

The Heartland International Value Fund invests primarily in small foreign companies selected on a value basis. Such securities generally are more volatile and less liquid than those of larger companies. Foreign securities have additional risk, including but not limited to, exchange rate changes, political and economic upheaval, and relatively low market liquidity. These risks are magnified in emerging markets. There can be no assurance that the Fund will grow to or maintain an economically viable size, in which case the Board of Directors may determine to liquidate the Fund. Value investments are subject to the risk that their intrinsic values may not be recognized by the broad market.

The statements and opinions expressed in this article are those of the author(s). Any discussion of investments and investment strategies represents the portfolio managers' views when presented, and are subject to change without notice.

There is no assurance that dividend-paying stocks will mitigate volatility. Dividend paying stocks cannot eliminate the risk of investment losses. Dividends are not guaranteed and a company's future ability to pay dividends may be limited. A company currently paying dividends may cease paying dividends at any time.

The inception date of the Heartland International Value Fund is 10/1/2010. The Heartland Funds are distributed by ALPS Distributors, Inc. Separately managed accounts and related investment advisory services are provided by Heartland Advisors, Inc., a federally registered investment advisor. ALPS Distributors, Inc. is not affiliated with Heartland Advisors, Inc.

Robert Sharpe is a Registered Representative of ALPS Distributors, Inc.

CFA is a trademark owned by the CFA Institute. 

Beta is a measure of the sensitivity of a portfolio's rates of return against those of the market. A beta less than 1 indicates volatility less than that of the market. Dividend Payout Ratio is the percentage of dividend earnings paid to shareholders. It is calculated by dividing yearly dividend per share by earnings per share. Information Ratio of a manager series vs. a benchmark series is the quotient of the annualized excess return and the annualized standard deviation of excess return. The Information Ratio measures the consistency with which a manager beats a benchmark. Price/Book Ratio (P/B) of a company is calculated by dividing the market price of its stock by the company's per-share book value. Sharpe Ratio is the average return, less the risk-free return, divided by the standard deviation of return. The ratio measures the relationship of reward to risk in an investment strategy. Standard Deviation is a measure of volatility of returns and is computed as the square root of the average squared deviation of the returns from the mean value of the return.


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