Chasing Superior Returns - An Analysis of the Norwegian Stock Market: Does a dividend yield strategy outperform the market in the long-term?

Abstract

High dividend yields are often associated with strong performance in stock markets, as companies paying higher dividends tend to generate stable returns. The relationship may vary between different markets, and this study investigates whether this holds true for the Norwegian stock market. Four portfolios were constructed based on dividend yield levels of 0%, 0-2.5%, 2.5-4%, and above 4% to evaluate their performance relative to the OSEBX. This analysis covers a 21-year period from 2003 to 2023, encompassing various economic cycles, including the Financial Crisis and the Covid-19 Pandemic.

Our findings indicate that the portfolio with a low to moderate dividend yield of 0-2.5% have delivered the strongest performance, outperforming all the other portfolios and the OSEBX. The portfolio with no dividend payout has underperformed compared to the other portfolios with dividends and the OSEBX. This underperformance is not compensated for by lower risk, as the portfolio continues to exhibit weaker performance even when adjusted for various risk measures. However, it is important to note that the majority of these results were not statistically significant, suggesting that dividend yield alone is not a reliable predictor of long-term investment success. This underscores the complexity of portfolio performance, highlighting that factors such as market condi- tions, economic cycles, and portfolio composition play a more significant role in driving consistent success over time.