Opinion – Grain in Grain: After losing for a decade, is it time for the dividend strategy?

Understanding investment strategies is critical to long-term investor success. The relevance of this is explained because each strategy tends to be more successful in a given economic scenario. Thus, the proper positioning generates more value in the long term.

In recent years, we have been experiencing a scenario of high growth and lower interest rates in the world. This scenario favors the strategy focused on growth companies. The Momento strategy is often the most successful and has been the top winner over the past decade.

Although not only focused on growth companies, the Momento strategy was usually formed by these companies.

The chart below shows the performance of the Moment strategy compared to the dividend strategy in the average of developed countries, since 2013.

The dividend strategy is formed by companies with a high rate of dividend distribution.

Those who invested BRL 10,000 in the momentum strategy a decade ago would have more than BRL 41,500 in November 2021. Those who invested in the dividend strategy, even considering their reinvestment, would have only BRL 18,000 in November 2021. 2021.

However, possibly, we are entering a scenario of higher interest rates all over the world.

While in Brazil this interest rate hike seems to be coming to an end, in the developed world it should begin this year.

The justification for the increase in interest rates is already known to us Brazilians. Inflation around the world has been surprising.

The scenario of higher inflation and higher interest rates usually causes a reduction in global growth.

As a result, since October last year, the dividend strategy has gained strength as can be seen in the chart below. As of late October, the dividend strategy has performed 20% above the Moment strategy.

Dividend-paying companies benefit in this scenario, as they tend to suffer, proportionally, less impact on profits with a drop in economic growth.

Additionally, as most of their results are in a shorter term than growth companies, they suffer less from the effect of rising interest rates.

Knowing investment strategies is critical to investor success. However, it is also important to properly project the economic scenario. So, comment here on which economic scenario of growth and interest rate you expect and in which strategy you will position yourself.

Michael Viriato is an investment advisor and founding partner of Investor’s House

(Follow and like De Grão em Grão on social networks. Instagram.) ​​

If you have questions or suggestions for topics that you would like to see commented on here, please feel free to send them by email.