Dividend Yield Strategies in Times of Increasing Interest Rates: An Examination of the Norwegian Stock Market

Nikolai Esse Berge & Erik Eugen Voll Didriksen

Student thesis: Master thesis


The current macro-economic conditions, with historically low interest rates, have created problems for investors to achieve risk-free inflation protected returns. In this environment, dividend yield strategies,such as “Dogs of the Dow” which thisthesis is based on, have become increasingly attractive to yield-seeking investors. Previous research on this topic has concluded with various results. On these grounds, the aim of this thesis is to examine a high dividend yield strategy in the Norwegian stock market, on an absolute and risk-adjusted level. Further, a particular focus on periods with increasing and decreasing interest rates are more distinctly investigated. In order to control for different risk factors, such as market, size, value and momentum in our returns, a Carhart (1997) model is applied. A dividend risk factor will also be constructed to identify if there is a general dividend premium in the Norwegian market. Throughout the examination period from 2002 until 2019, our high dividend yield portfolio has significantly outperformed the benchmark index. After estimating the expected returns, adjusted for risk with the Carhart four-factor model, the high dividend yield portfolio still achieve positive abnormal returns, with a yearly average of 4.81%. Cyclical attributes are found in the portfolio, suggesting the superior returns to be dependent on a bull market. The analysis of specific interest rate periods, indicate that the strategy struggle when interest rates are rising, compared to the index – especially late in the periods. On the contrary, the dividend yield strategy is found most successful when interest rates are decreasing or stable at a low level.

EducationsMSc in Applied Economics and Finance, (Graduate Programme) Final Thesis
Publication date2019
Number of pages125