Do Turkish Dividend Stocks Outperform in Bear Markets

It is not a secret that dividend-paying stocks often come out ahead during a market sell-off. Because many investors are attracted to the safety appeal of them. As Turkish stock market is hanging around record high levels with foreign capital outflows on the horizon due to expected rate hikes by the US Federal Reserve, it is much closer to enter a bear market this year. Under these conditions one may think that high-yielding Turkish stocks will be seen as a defensive play in bear market in order to protect the value of portfolio, or to surrender a more tolerable loss at least.

This is where we are getting straight to the point. First of all, we determined three bear market periods that averagely last seven months. During these periods Turkish equities benchmark index (known as BIST 100) declined 47.6%, 31.2%, and 41.5%, respectively (see the chart below). Then out of blue-chip Turkish stocks we pick the five highest dividend-yielding stocks for the period of one year to each bear market periods. Ultimately, we compare the returns of the benchmark index and ourĀ  picks to see how we would have done in the bear markets with the five dividend stocks using a buy-and-hold approach.

Turkish Stock Market - Bear Market

Our stock picks based on the hold-and-buy the highest dividend-yielding Turkish stocks strategy totally include 11 different stocks and are in accordance with the list which follows: FROTO (Ford Otosan), AKCNS (Akcansa Cimento), CIMSA (Cimsa Cimento), PNSUT (Pinar Sut Mamulleri) BOLUC (Bolu Cimento), TTKOM (Turk Telekom), TUPRS (Tupras Turkiye Petrol Rafinerileri), TTRAK (Turk Traktor), AYGAZ (Aygaz), DOAS (Dogus Otomotiv), NTHOL (Net Holding). In a sectoral breakdown the dominance of industrials and utilities are strikingly clear.

Below shows how our play would result.

Turkish Dividend Paying Stocks Performance

In two of three bear markets, our strategy seems to be beating the market by generating comparatively lower losses. However, in 2008 it generated a negative alpha of 12.1% amid the global financial turmoil. Also in 2011’s bear market the success of the strategy is mostly due to stocks correlating weakly with the overall market return. In additionally the strategy seems to be at its best with an excess return of 20% roughly. Eventually in 2013’s bear market following the Gezi protests and the US Federal Reserve’s first rate hike signal, and continuing with 17 December graft scandal, our stock picks drop by 27.7% averagely while the BIST 100 is down 41.5%.

In conclusion we can say that Turkish dividend stocks may save you in a bear market after reviewing the evidence. Picking safe dividend stocks in a mature bull market where a whiff of change is not that far seems like a considerable strategy to run as well as a further research is absolutely necessary to decide correctly.