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MSCImsci.com

Focus: Yield

VALUE

SIZE

MOMENTUMQUALITYYIELDVOLATILITYGROWTHLIQUIDITY

Factor focus: Yield 1

Factor focus:Yield• Dividend persistence screens
to exclude securities without agood historical track record ofconsistent dividend payment• Quality screens to exclude
firms with low valuation andweak balance sheets that
could fall into a “value trap”

In the realm of investing, a factor is any characteristic that helps explain the long-term risk andreturn performance of an asset. MSCI Factor Indexes are designed to capture the return of factors
which have historically demonstrated excess market returns over the long run.

MSCI Factor Indexes are rulesbased, transparent indexes
targeting stocks with favorable
factor characteristics – asbacked by robust academic
findings and empirical results– and are designed for simple
implementation, replicability,
and use for both traditional
indexed and active mandates.

Defining Yield
A yield (or high dividend yield)
investment strategy gains
exposure to companies thatappear undervalued and havedemonstrated stable andincreasing dividends. However,a naïve high-yielding equity
strategy can be exposed tovarious “yield traps,” such

2 Factor focus: Yield

as those stemming from
temporarily high earnings, highpayouts or falling stock prices.

during periods of economic
contraction (see “Performanceand Implementation”).

The MSCI High Dividend
Yield Indexes focus on highdividend yield companies,
but exclude companies that
do not demonstrate dividendsustainability, dividend
persistence and quality.
Securities that have passed
these screens are considered
for inclusion in the MSCI HighDividend Yield Index. Only thosewith a dividend yield at least
30% higher than the parent
market-cap index are included.

The MSCI HighDividend Yield
Index employs thefollowing:

The yield factor is categorized
as a “defensive” factor, meaning
it has tended to benefit• Dividend sustainability
screens to exclude bothsecurities whose dividend
payout is extremely
high or negative, andtherefore, where future
dividend payments might
be in jeopardy, as well as
securities with high dividend
yield resulting from aplunging stock price without
fundamental support

Why investors
have used yieldstrategies
Investors may focus on theequity dividend income thatis associated with the yieldfactor for a variety of purposes.
Institutional investors seeking
income outside of the fixedincome world have used thestrategy. For instance, aninsurance company that needsa regular income stream to pay
out claims could tilt its portfolio
to the yield factor to meet thisobjective. High dividends havealso historically accounted for alarge portion of long-term total
portfolio returns.1
Dividend investing is as old asstocks themselves, playing acentral role in the evolution ofcorporations over the centuries.
Groundbreaking economists
Benjamin Graham and David
Dodd famously called dividend
payouts “the prime purposeof a business corporation … A
successful company is one thatcan pay dividends regularly andpresumably increase the rate as
time goes on.”Several theories seek to explain
the superior performance ofhigh-dividend stocks. Onenotes that yield investors havepreferred dividend payouts inthe present to uncertain capitalgains in the future.2
They have also tended to view
dividend increases as a sign offuture profitability. A numberof studies show that dividend
yields have been strong
indicators of earnings growth.3

The MSCI High Dividend Yield
Indexes focus on high dividend yieldcompanies, but exclude companies
that do not demonstrate dividendsustainability, dividend persistenceand quality.

Factor focus: Yield 3

Performance &implementation

Long-term performance: December 1999 - December 2023
Long-term performance

MSCI World Factor Indexes
Over time, individual factors have delivered outperformance relative to the market.

Although factor strategies have exhibited long-term outperformance, in the short-term, factor
performance has been cyclical and has generated periods of underperformance.

WorldWorld Enhanced Value

World Quality

World Equal Weighed

World Minimum Volatility (USD)

World MomentumWorld Growth Target

World High Dividend Yield

The MSCI World High Dividend Yield Index has historically generated excess returns over the long run
with a 0.7% annual return over the MSCI World Index since 1999 as represented above.

4 Factor focus: Yield

MSCI analysis shows that highdividend stocks outperformed boththe market and lower-yielding stocks
over the 88-year period throughSeptember 2016.

Factor focus: Yield 5How factors have performed
relative to each other:

YieldConclusion
High-yield equity factor investing involves screening for sustainably
high dividends. It has provided yield income with equity market
participation. The MSCI High Dividend Yield Indexes aim to represent
the performance of companies that have historically demonstrated
stable and increasing dividends, while mitigating risks against value
traps. For yield seekers outside fixed income, the equity yield factor
index has offered many attractive properties such as defensive
income, a long-term positive risk premium and diversification toother factors.

Footnotes
1 Wei Z., C. Chia and S. Katiyar. (2015).“Harvesting Equity Yield: Understanding
Factor Investing.” MSCI Research Insight.
WorldWorld Enhanced Value

World Quality

World Equal Weighed

World Minimum Volatility (USD)

World Momentum

World Growth Target

World High Dividend Yield

The analysis and observations in this report are limited solely to the period of the relevant historical data, backtest or simulation. Past performance — whether actual, back tested or simulated — is no2 Lintner, J. (1956). “Distribution of Incomes of Corporations Among Dividends,
Retained Earnings, and Taxes.” American Economic Review, Vol.46,
pp. 97-113.
3 Arnott, R.D and C.S. Asness. (2003). “Surprise! Higher Dividends = Higher
Earnings Growth.” Financial Analysts Journal, Vol.59, No.1, pp. 70-87.

indication or guarantee of future performance. None of the information or analysis herein is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind ofinvestment decision or asset allocation and should not be relied on as such. The time periods covered in the charts in this paper were dictated by the data available when we conducted the simulations
which produced them. There are frequently material differences between backtested or simulated performance results and actual results subsequently achieved by any investment strategy.

6 Factor focus: Yield

Factor focus: Yield 7

Learn more about Factor Investing at
www.msci.com/factor-investing

About MSCI Inc.
MSCI is a leading provider of critical decision support tools
and services for the global investment community. With
over 50 years of expertise in research, data and technology,
we power better investment decisions by enabling clientsto understand and analyze key drivers of risk and returnand confidently build more effective portfolios. We createindustry-leading research-enhanced solutions that clientsuse to gain insight into and improve transparency across theinvestment process.
To learn more, please visit www.msci.com.

The information contained herein (the “Information”) may not be reproduced or redisseminated in whole or in part without prior written permission from MSCI ESG Research. The Information may not be
used to verify or correct other data, to create any derivative works, to create indexes, risk models, or analytics, or in connection with issuing, offering, sponsoring, managing or marketing any securities,
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Factor focus: Yield 8