Beating the Market: Dollar-Cost Averaging with the
Profitable Dividend Yield Strategy

Abstract

Extensive evidence shows that lump sum investing (LSI) beats dollar-cost averaging (DCA) in most stock markets. We show that DCA investors are not doomed to inferior returns. Motivated by the clean surplus accounting model of asset pricing, we consider a DCA strategy that invests in stocks with a high gross profits-to-asset ratio and high dividend yield. Using block bootstrap simulations of long-horizon (20-year) returns, we show that this profitable dividend yield strategy significantly outperforms LSI in the market index in many dimensions.