Today I thought I would share a couple of research papers I read recently about the merits or otherwise of following a yield based investment strategy. The first one looks at whether this is the best way to invest in the value part of the market, as I feel it is always important to read things that do not necessarily agree with your view point. Otherwise I think you suffer from what is called confirmation bias - which is over emphasising or only seeking out things that agree with your view point.
So the first article can be seen on ValueWalk or download a PDF if you prefer. The second one is referenced in the first article and can be found on Advisor Perspectives or in PDF form. If you can't be bothered to wade through them (although they are not too technical) - the bottom line is that a yield based strategy may not be the best value approach for the highest total returns. However, since yield based strategies tend to be lower beta, on a risk adjusted basis they measure up to more volatile value strategies like low P/E and low Price to book.
I like the concept here of reduced estimation risk, the greater predictability of my income returns and lower capital volatility that investing for yield brings. I realise and I'm prepared to miss out on some potential upside from more volatile value stocks that don't have the immediate income that I prefer. As ever I guess you pay your money and take your choice, hell you can even buy highly rated growth stocks if you want, but I wouldn't recommend it!