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A topic tweet with over 100,000 readers will most likely be popular for two or three days; a hit TV series may only be popular for two months... However, in the capital market there is a type of stock that is "hot" for a long time - dividend stocks, which bring investors steady returns and are very heartwarming.

In recent years, dividend stocks have become one of the few bright spots in the stock market, and this has lasted for quite a long time. "Dividends" - the core source of returns in the securities market, have become increasingly popular, allowing investors to recognize their true significance.

During the period of rapid economic growth, investors may focus on growth sectors such as the Internet, consumption, technology, and medicine, but in fact, dividend assets have always been quietly giving investors generous returns. This round of dividend market began in 2021. When core assets receded, investment lacked hot spots, and market interest rates fell, people realized the steady returns brought by dividend assets and turned to pursue this certainty.

Dongfanghong Dividend Quantitative Stock Selection Hybrid Initiated Securities Investment Fund

(Class A 021650, Class C 021651)

Released from August 5 to August 23

Dividend assets highlight high cost-effectiveness

The popularity of dividend assets is not a short-term craze, but a return to the essence of investment. From the perspective of corporate operations, cash dividends are one of the direct signals that companies convey to investors about their operating conditions. Companies that can continue to pay high dividends usually have a sustained competitive advantage. In the context of a slowdown in overall economic growth, a decline in market interest rates, and a shortage of high-return assets, dividend assets that continue to pay stable dividends and have a suitable dividend rate will become an important investment variety for investors, especially institutional investors.

The income from dividend assets mainly comes from three aspects: first, continuous and stable dividend income; second, the increase in market value brought about by the continuous growth of company profits; third, companies with high dividend yields often have lower valuations and have the opportunity to obtain stock price increases brought about by valuation repair.

According to Wind data, in the past ten years (July 1, 2014 to June 30, 2024), the Topix Dividend Low Volatility Total Return Index rose by 449.81%, with an annualized return of 19.15%; the CSI Dividend Total Return Index rose by 261.17%, with an annualized return of 14.11%. During the same period, the CSI 300 Total Return Index, CSI 800 Total Return Index and CSI All-Share Total Return Index rose by 98.2%, 81.08% and 63.69% respectively.

Note: Data source: Wind, statistical period: July 1, 2014 to June 30, 2024. Total return index includes the dividends of constituent stocks and automatically reinvests the dividends. CSI Dividend Total Return Index code: H00922, TOPIX Dividend Low Volatility Total Return Index code: 921446, CSI 300 Total Return Index code: H00300, CSI 800 Total Return Index code: H00906, CSI All-Share Total Return Index code: H00985.

As can be seen from the above chart, the dividend-related index has excellent long-term "endurance" and has risen against the trend in the past three years, developing an independent trend.

The core attraction of dividend assets is the high dividend yield. Compared with other stock market indices, the dividend yields of dividend indices (such as the CSI Dividend Index and the TOPIX Dividend Low Volatility Index) are significantly higher. At a time when market interest rates are falling, the investment value of high dividend yields is becoming more and more prominent.

Note: Data source: Wind, as of June 30, 2024. CSI Dividend Index code: 000922, TOPIX Dividend Low Volatility Index code: 931446.

Stocks with higher dividend yields often correspond to higher dividend payout ratios or lower valuations. Therefore, stocks with high dividend yields usually have lower valuations, providing a better safety margin. Even after nearly three years of growth, as of June 30, the price-to-earnings ratios of the CSI Dividend Index and the Topix Dividend Low Volatility Index were still lower than those of the CSI 300, CSI 800 and CSI All-Index, and they are still investment targets with a higher safety margin and cost-effectiveness.

Policies encourage dividends to boost investment confidence

From the perspective of listed companies, continuous and stable dividends mean the stability of the company's operations; from the perspective of investors, continuous and stable dividends help improve investor returns and are an important source of their long-term investment confidence. In recent years, regulators have paid more and more attention to dividends of listed companies, and a number of policies encouraging listed companies to pay dividends have been introduced, further strengthening the market's expectations for increased dividends of listed companies.

In October 2023, the China Securities Regulatory Commission issued "Guidelines for the Supervision of Listed Companies No. 3 - Cash Dividends of Listed Companies". On the basis of upholding corporate autonomy, it encourages companies to improve the stability and frequency of dividends, and for companies that do not pay dividends or have large financial investments but low dividend ratios, it urges dividends by strengthening disclosure requirements.

In April this year, the State Council issued the "Opinions of the State Council on Strengthening Supervision, Preventing Risks and Promoting High-Quality Development of the Capital Market", proposing to strengthen the supervision of cash dividends of listed companies. For companies that have not paid dividends for many years or have a low dividend ratio, restrict major shareholders from reducing their holdings and implement risk warnings. Increase incentives for high-quality dividend companies and take multiple measures to promote higher dividend rates. Enhance the stability, sustainability and predictability of dividends, and promote multiple dividends a year, pre-dividends, and dividends before the Spring Festival.

In recent years, dividend-themed investment has been reflected in high-quality central state-owned enterprises such as coal, petroleum and petrochemicals, operators, and banks as the core line. On the one hand, due to the State-owned Assets Supervision and Administration Commission's increased market value assessment of central state-owned enterprises, central state-owned enterprises have undergone positive changes in corporate governance and dividends; on the other hand, after some traditional industries have experienced supply-side reforms, their profitability has improved, their balance sheets have been repaired, and they have the ability to pay high dividends.

How does active quantitative investment enhance the effectiveness of dividend investment?

How to get better investment results from dividend assets? On the basis of establishing the Oriental Red Dividend Low Volatility Index Fund,The quantitative team of Dongfanghong Asset Management has further developed an active quantitative product focusing on dividend stocks - Dongfanghong Dividend Quantitative Stock Selection Hybrid Fund (Class A 021650, Class C 021651), within the scope of dividend-themed stocks, we further use active quantitative management and multi-factor, multi-strategy stock selection models to better optimize dividend investments and pursue excess returns that exceed the benchmark. (The fund's benchmark is: CSI Dividend Index yield * 85% + Hang Seng Index yield (adjusted by exchange rate valuation) * 5% + China Bond Index yield * 10%)

According to the contract, the proportion of equity assets (including depositary receipts) invested by the Oriental Red Dividend Quantitative Stock Selection Mixed Launch Fund is 60%-95% of the fund assets, with a focus on investing in listed companies with relatively stable dividends and higher dividend yields. The proportion of investment in dividend-themed related stocks defined by this fund shall not be less than 80% of non-cash fund assets.

The fund contract defines dividend-themed stocks: they must be non-ST or *ST stocks with good operating conditions, no major violations of laws and regulations, and no major abnormalities in dividend distribution and operating conditions; and they must meet either of the following two conditions: in the past two years, at least one year has implemented cash dividends and the cash dividend rate or dividend yield is in the top 50% of the market, or they must be constituent stocks and alternative constituent stocks of the CSI Dividend Index.

Within the scope of dividend-themed stocks, Oriental Red Dividend Quantitative Stock Selection Hybrid Launch Fund combines different factors and matches different strategies based on scientific factor screening and exposure to establish a more efficient stock selection system, in order to better screen and construct dividend stock portfolios and pursue sustained and stable excess returns.

In the process of constructing different strategies, for example, the dividend factor, low volatility factor, and valuation factor can be combined into one strategy, and the dividend factor, low volatility factor and other factors can be combined into another strategy... Different strategies are superimposed and the combination construction is optimized to improve the cost-effectiveness from different aspects.

A strong team is committed to creating a dividend quantitative stock selection fund

Since Dongfanghong Asset Management started to develop quantitative business in 2011, it has accumulated more than ten years of rich asset management experience. The team continues to develop private hedge products, public Smart Beta index fund series, public index enhancement fund series and public active quantitative fund series. The team has stable personnel and continuous development, and is fully experienced in practical research, system development and investment management.

Xu Xijia, the proposed fund manager of Dongfanghong Dividend Quantitative Stock Selection Hybrid Fund, has a doctorate in finance, 24 years of securities experience and 13 years of investment management experience.He is currently the fund manager of Dongfanghong CSI Competitiveness Index Fund, Dongfanghong CSI Dongfanghong Dividend Low Volatility Index Fund, Dongfanghong CSI Advantage Growth Index Launch Fund, Dongfanghong Quantitative Stock Selection Mixed Launch Fund and Dongfanghong CSI 500 Index Enhanced Launch Fund.

Xu Xijia joined Dongfanghong Asset Management in 2011 and is mainly responsible for the construction of the quantitative team. Since Dongfanghong's quantitative team entered the public offering business, it started with customized factor indexes and steadily gained the trust of institutional and individual investors by building a multi-level quantitative product matrix.

In recent years, the team has focused on promoting Smart Beta customized index matrices, index enhancement and active quantitative multi-strategy businesses covering major styles and the entire market cycle. Smart Beta customized indices listed on the CSI Index have performed outstandingly in the past and have withstood the test of different market environments.

Risk Warning: Index/historical data is for reference only. Historical data does not represent the future (and the performance of this fund). Dongfanghong Dividend Quantitative Stock Selection Fund is an actively managed product, not a passive index fund. This fund is a mixed fund. Its expected risk and expected return are higher than those of bond funds and money market funds, but lower than those of stock funds. The main risks faced by this fund include but are not limited to: market risk, management risk, liquidity risk, credit risk, technical risk, operational risk, the risk that the risk-return characteristics of legal documents may be inconsistent with the risk assessment of the sales agency, other risks, and the risk of automatic termination of the sponsoring fund. The past performance of the fund and its net value do not indicate future performance, and the performance of other funds managed by the fund manager does not constitute a guarantee of the performance of this fund. The fund manager promises to manage and use the fund assets in accordance with the principles of honesty, trustworthiness, diligence and responsibility, but does not guarantee a certain profit or a minimum return. Fund investment is risky and investment should be cautious. Before investing in the fund, investors should carefully read the "Fund Contract", "Recruitment Instructions", "Fund Product Information Summary" and other documents. If you need to purchase relevant fund products, please pay attention to the relevant regulations on investor suitability management, conduct risk assessment in advance, and purchase fund products with risk levels that match your own risk tolerance. The risk rating results of this fund shall be based on the rating of the sales agency. Investors are requested to purchase products with risk levels that match their risk tolerance. This fund is issued and managed by Shanghai Orient Securities Asset Management Co., Ltd. The sales agency does not bear the investment, redemption and risk management responsibilities of the product. (CIS)

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