**Considering an Equity Income Investment? Do Not Overreach for Ultra-High Yielding Stocks**

**History**

**Source:**LIM; Fama, French: http://mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library.html. Fama and French data is produced using the CRSP dataset. Charts represent value-weighted returns. Yield is represented with dividend yield from 1/1927-12/2021. Results shown do not reflect our actual client returns. Past performance is no guarantee of future results. Gross performance results may reflect the reinvestment of dividends and other earnings (if any). Dividends = 0; quintiles; Firms with zero dividends are in only the Dividends = 0 portfolio. Portfolios are formed on D/P at the end of each June using NYSE breakpoints. The dividend yield used to form portfolios in June of year “t” is the total dividends paid from July of t-1 to June of t per dollar of equity in June of t. All NYSE, AMEX, and NASDAQ stocks for which we have ME for June of year t, and at least 7 monthly returns (to compute the dividend yield) from July of t-1 to June of t. Fama and French form the portfolios at the end of December each year by sorting on 1 of the 4 ratios and then compute value-weighted returns for the following 12 months.

**Beware of Ultra-High-Yielders**

**Source: **LIM; Fama, French: http://mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library.html. Fama and French data is produced using the CRSP dataset. Charts represent value-weighted returns. Yield is represented with dividend yield from 1/1927-12/2021. Results shown do not reflect our actual client returns. Past performance is no guarantee of future results. Gross performance results may reflect the reinvestment of dividends and other earnings (if any). Dividends = 0; deciles. Firms with zero dividends are in only the Dividends = 0 portfolio. Portfolios are formed on D/P at the end of each June using NYSE breakpoints. The dividend yield used to form portfolios in June of year “t” (e.g. t = 2021) is the total dividends paid from July of t-1 to June of t per dollar of equity in June of t. All NYSE, AMEX, and NASDAQ stocks for which we have ME for June of year t, and at least 7 monthly returns (to compute the dividend yield) from July of t-1 to June of t. Fama and French form the portfolios at the end of December each year by sorting on 1 of the 4 ratios and then compute value-weighted returns for the following 12 months.

**Why do ultra-high yielders underperform other high yield stocks?**

A natural question that arises from examining this data is “Why do the ultra-high-yielding stocks tend to underperform other high-yielding stocks?” One possible reason is these stocks appear to be less attractive from a fundamental perspective than other stocks with attractive yields. As we see in the table below, ultra-high-yielding stocks have tended to have higher earnings variation and more leverage than the other groups of high yield stocks. In this table, higher numbers denote higher exposure to the fundamental characteristic.

**Source:**LIM, Factset, Barra, Russell. Each month end from 12/31/1998-12/31/2021, using the Russell 1000 universe of stocks, we group stocks into eleven groups based on dividend yield (one non-yield group and 10 groups of stocks that have a positive dividend yield) and calculate equal-weighted average Barra risk model exposures (using the Barra US Long-Term Model, USE3L) each month from 12/31/1998-12/31/2021 and averaged these monthly numbers through time.

**NOTE:**Source: LIM, Factset, Russell. Each month end from 12/31/1998-12/31/2021, using the Russell 1000 universe of stocks, we group stocks into eleven groups based on dividend yield (one non-yield group and 10 groups of stocks that have a positive dividend yield) and calculate an equal-weighted average dividend growth each month from 12/31/1998-12/31/2021 and averaged these monthly numbers through time. Dividend growth is defined as: the (forward 1 quarter dividend – dividend from same quarter one year ago) / dividend from same quarter one year ago.

**Ultra-High Yield Case Study: Lumen Technologies, Inc.***

**Conclusion**

**Disclosure**