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Abstract
With life expectancy rising and social security payouts diminishing, equities continue to be an important asset class in retirement portfolios. However, choosing the right type of stocks can make a significant difference to retirement wealth and funding adequacy. Motivated by clean surplus accounting theory, we propose a strategy that focuses on stocks with both high gross profitability and high dividend yield. Simulations of long-horizon returns show that this “profitable dividend yield,” or PDY, strategy significantly outperforms diversified equity portfolios in terms of funding adequacy. As a bonus, PDY stocks have lower downside risks than the market in the short term.
TOPICS: Retirement, security analysis and valuation, equity portfolio management
- © 2016 Pageant Media Ltd
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US and Overseas: +1 646-931-9045
UK: 0207 139 1600