By Mark Hulbert

"Dividends don't lie."

That simple yet profound insight was the foundation of Investment Quality Trends -- an investment newsletter that this month is celebrating its 60th birthday. Geraldine Weiss, the newsletter's late founding editor, based her investment strategy on dividends because "a clever accountant can make earnings appear good or not so good, depending on the season or the objective," she wrote. "There can be no subterfuge about a cash dividend. It is either paid or it is not paid."

It is testament to the long-term value of Weiss' strategy that her newsletter is still alive and well, edited in recent decades by Kelley Wright. Hardly any other investment newsletters have publishing tenures that long.

The proof of the pudding is in the eating. My performance auditing firm has been tracking Investment Quality Trends for 40 of the past 60 years, and reports that its model portfolios on average since 1986 have beaten the broad stock market by a margin of 11.4% to 11.1%, annualized. Better yet, those portfolios have been less volatile than the broad market, on average, so they have beaten the overall market by even more on a risk-adjusted basis. (I used the Dow Jones U.S. Total Stock Market Total Return Index as the proxy for the entire market.)

Weiss' and Wright's unique approach to dividends is to focus on blue-chip stocks' relative rather than absolute yield. The newsletter considers a stock to be undervalued if its yield is at or near the high end of the range of its past yields, and overvalued when close to the low end of that range. The consequence, which strikes some as counterintuitive, is that a stock with a higher absolute yield may nevertheless be considered a worse bet than another with a lower absolute yield.

This is currently the case with healthcare services provider Chemed, whose dividend yield is 0.62%, and mining company Rio Tinto, which is yielding 3.99%. Wright considers the former to be undervalued and the latter overvalued. The investment implication is that investors are often led astray when focusing on absolute yield, mistakenly believing that stocks with higher yields are automatically better bets than those with lower yields.

One of the best illustrations of this comes from comparing Investment Quality Trends with the so-called Dogs of the Dow strategy -- which calls for investing each year in the 10 stocks within the Dow Jones Industrial Average with the highest absolute dividend yields at the end of the previous year. As an alternative to that strategy, Wright created what he calls his Lucky 13 portfolio, picking stocks that he holds for 12 months using his newsletter's methodology. Since 2000, according to my performance auditing firm, the Dow Dogs strategy has produced a 6.6% annualized return (through March 31), versus 11.2% for Wright's Lucky 13 portfolio.

What About Buybacks?

A fair question to ask is if Wright's approach has become less effective in recent years as corporations have increasingly preferred share repurchases over dividends when returning cash to shareholders. Via email, he said that repurchases' popularity has led him to tweak his newsletter's original methodology to favor stocks with healthy cash-flow yields. That's because companies that are aggressively repurchasing their shares can sometimes hide their anemic revenue growth, which in turn reduces the likelihood that they can significantly increase their dividends in ensuing years.

Wright's tweaks appear to be working: Since the mid-1990s, when buybacks started to become widely used on Wall Street, Investment Quality Trends' model portfolios have outperformed the broad stock market, according to my auditing firm's calculations, by a margin of 10.5% to 9.9% annualized. That's a greater margin of outperformance than in the prior decade.

Full disclosure note: Investment Quality Trends is one of the newsletters that pays a flat fee to have its returns calculated by my performance auditing firm. Because all monitored newsletters pay the same flat fee, my firm has no incentive to make any newsletter's returns better than another.

Mark Hulbert is a regular contributor to Barron's. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at mark@hulbertratings.com .

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This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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April 20, 2026 02:00 ET (06:00 GMT)

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