High Dividend Yield Portfolios: More Popular, Yes, But What About Risk?

Several recent articles have cited the renewed popularity of funds composed of stocks with high dividends. These articles pointed out that as stock prices have risen, valuations have increased, and this type of strategy may be more risky because it has become overvalued. Our goal was to look at the "riskiness" of the strategy through the lens of our risk models and to test the thesis using some standard valuation measures.

In summary, our analysis showed that while the valuation levels of our test high dividend yield portfolio were high, especially relative to the broader market, a number of our other risk indicators did not suggest that this strategy was overly risky -- especially if the stocks were viewed as an alternative to a broader-market investment