Yieldr 4 Factor Strategy: A Dividend Growth Approach

The Yieldr 4 Factor Strategy is a systematic dividend growth investing strategy designed to identify high-quality businesses with attractive dividend yields, strong dividend growth, financial strength, and efficient capital allocation.

Inspired by the underlying methodology of the Schwab U.S. Dividend Equity ETF (SCHD), the strategy combines four fundamental financial metrics to rank dividend-paying companies. Its objective is to build a portfolio capable of generating a growing stream of dividend income while targeting a long-term compound annual growth rate (CAGR) of 12%.

Rather than focusing exclusively on high dividend yields, the methodology places greater emphasis on the characteristics of the underlying businesses. The goal is to identify companies that can continue growing their operations, generating cash, and increasing shareholder distributions over time.

In this guide, we’ll explain how the Yieldr 4 Factor Strategy works, the four financial metrics used to select stocks, the screening and ranking methodology, and the historical results from its real-time performance tracking.

What Is the Yieldr 4 Factor Strategy?

The Yieldr 4 Factor Strategy is a rules-based stock selection methodology that evaluates dividend-paying companies using four financial metrics:

Forward Dividend Yield
Five-Year Dividend Growth Rate
Free Cash Flow to Total Debt
Return on Capital Employed (ROCE)

Each metric measures a different characteristic of a business. Together, they provide a broader picture of a company’s income potential, dividend growth history, financial strength, and profitability.

The strategy was inspired by SCHD’s underlying four-factor stock selection methodology. However, Yieldr uses Return on Capital Employed (ROCE) rather than Return on Equity (ROE), placing greater emphasis on how efficiently a business generates operating profits from its invested capital.

The strategy starts with the Yieldr Quality Investable Universe, a curated collection of more than 250 companies selected for their business quality and dividend characteristics.

Additional financial and dividend requirements narrow this universe before companies are ranked across the four factors. The 50 highest-ranked companies make up the 4 Factor Strategy list in Yieldr.

The strategy is designed for investors interested in long-term dividend growth rather than maximizing their starting dividend yield. It seeks to identify businesses that combine meaningful current income with the financial characteristics that may support growing distributions in the future.

The Four Factors Explained

Each of the four factors serves a specific purpose in evaluating a potential dividend investment.

1. Forward Dividend Yield

Forward dividend yield measures the annualized dividend a company is expected to pay over the next twelve months relative to its current share price.

It provides an indication of the income an investor could receive based on the current market price.

Dividend yield is included because generating income is an important part of the strategy. However, the objective is not to select the highest-yielding stocks in the market.

An unusually high dividend yield can sometimes indicate underlying problems with a business, including declining earnings, deteriorating financial conditions, or concerns about the sustainability of its dividend.

By evaluating yield alongside dividend growth, free cash flow, and profitability, the strategy avoids relying on current income as the sole measure of an attractive dividend investment.

2. Five-Year Dividend Growth Rate

The five-year dividend growth rate measures how quickly a company has increased its dividend over the preceding five years.

Dividend growth is an important component of long-term income investing. Companies that consistently increase their distributions can provide investors with a growing stream of income over time.

For example, a company yielding 2% today that grows its dividend by 10% annually can eventually provide substantially more income relative to the original investment, assuming the dividend growth continues.

This is one reason the strategy places considerable emphasis on dividend growth rather than simply selecting stocks with the highest starting yields.

A strong dividend growth history can indicate that a business has been able to increase its earnings and cash generation while returning more capital to shareholders.

However, historical dividend growth is not a guarantee of future increases. The other factors help evaluate whether the underlying business has characteristics that could support continued growth.

3. Free Cash Flow to Total Debt

Free cash flow to total debt measures how much free cash flow a company generates relative to its outstanding debt.

Free cash flow represents the cash remaining after a company covers its capital expenditures. This cash can be used to reduce debt, reinvest in the business, repurchase shares, or distribute capital to shareholders.

The ratio helps evaluate a company’s ability to generate cash relative to its financial obligations.

Businesses generating substantial free cash flow relative to their debt generally have greater financial flexibility. They may be better positioned to manage their balance sheets, withstand challenging economic conditions, and continue funding their operations and shareholder distributions.

Companies with no outstanding debt receive the highest ranking for this factor.

The objective is to favor businesses with strong cash generation and manageable financial obligations rather than companies that depend heavily on borrowing to support their operations or distributions.

4. Return on Capital Employed (ROCE)

Return on Capital Employed measures how efficiently a company generates operating profits from the capital invested in its business.

Unlike metrics that focus primarily on earnings or revenue growth, ROCE evaluates how effectively management uses the capital available to generate returns.

A business that consistently generates high returns on capital may have competitive advantages, efficient operations, or a business model that requires relatively little capital to generate profits.

This is particularly important for long-term investors because companies that allocate capital efficiently can have more opportunities to reinvest in their operations and grow earnings over time.

Yieldr uses ROCE rather than Return on Equity (ROE), which is used in SCHD’s underlying methodology.

The distinction is important because ROCE evaluates returns generated from the capital employed in the business, rather than focusing exclusively on shareholder equity.

How the Yieldr 4 Factor Strategy Works

The strategy follows a systematic screening and ranking process. Every company must first meet a set of fundamental requirements before it can be considered for the final selection.

Step 1: Start With the Quality Investable Universe

The starting point is the Yieldr Quality Investable Universe, which currently contains more than 250 companies.

The universe is designed to identify businesses with established operating histories, financial strength, and attractive dividend characteristics.

Rather than screening the entire stock market, the 4 Factor Strategy begins with this curated collection of companies.

This creates a more focused starting point for identifying potential dividend growth investments.

Step 2: Apply the Selection Criteria

The full Quality Investable Universe is filtered using the following requirements:

Selection Criteria

Five-Year Dividend Growth: At least 5%
Revenue Growth: At least 5%
Dividend Payout Ratio: Below 80%
Positive 1, 3 and 10 year Dividend Growth Rate

Companies that fail any of these requirements are excluded.

These filters are designed to identify businesses with a consistent history of dividend growth, positive revenue growth, and a reasonable dividend payout ratio.

The dividend growth requirements also help eliminate companies with deteriorating dividend trends, while the payout ratio requirement helps avoid businesses distributing an excessively large portion of their earnings.

The intention is to establish a minimum level of business and dividend quality before comparing companies across the four ranking factors.

Step 3: Rank Companies Across the Four Factors

After applying the selection criteria, the remaining companies are ranked independently across all four metrics.

Each metric is ranked in descending order, meaning companies with higher values receive better rankings.

The ranking process is as follows:

Forward Dividend Yield: Highest to lowest.
Five-Year Dividend Growth: Highest to lowest.
Free Cash Flow to Total Debt: Highest to lowest.
Return on Capital Employed: Highest to lowest.

Companies with no outstanding debt receive the highest ranking for the free cash flow to total debt factor.

Each company’s four individual rankings are then added together to calculate its combined ranking.

The four factors receive equal consideration in this calculation. This means a company must demonstrate strength across multiple characteristics to achieve a high overall position.

For example, a company with an exceptionally high dividend yield but relatively weak profitability and dividend growth may rank below a company with a more balanced combination of characteristics.

Step 4: Select the Top 50 Companies

The 50 companies with the lowest combined ranking are selected for the Yieldr 4 Factor Strategy list.

If two companies have the same combined ranking, forward dividend yield is used as the tiebreaker.

The result is a collection of 50 dividend-paying businesses ranked according to their combined income, dividend growth, financial strength, and profitability characteristics.

Step 5: Update Rankings Automatically

The Yieldr 4 Factor Strategy rankings are recalculated overnight on trading days.

As financial information, dividend data, and market prices change, companies can move up or down the rankings.

Companies can also enter or leave the list as they meet or fail the underlying selection criteria.

This systematic process keeps the strategy updated without requiring subjective stock selection or manual ranking adjustments.

What Does the 4 Factor Strategy Actually Select?

The four factors provide a useful framework for understanding the types of companies the strategy is designed to identify.

To better illustrate the characteristics of the selected companies, we tracked the average starting metrics across 42 monthly selections.

The results provide an indication of what the typical group of selected companies looks like when each monthly portfolio is established.

Average Starting Value

Forward Dividend Yield: 2.17%
Five-Year Dividend Growth: 21.39%
Return on Capital Employed: 24.00%
Free Cash Flow / Total Debt: 5.04x

These figures help illustrate the strategy’s emphasis.

The average starting dividend yield of approximately 2.17% is relatively modest compared with traditional high-yield dividend strategies.

However, the selected companies have historically demonstrated substantial dividend growth, averaging approximately 21.39% over the preceding five years.

The average ROCE of 24% also indicates that the selected companies have historically generated meaningful operating returns relative to their capital employed.

Finally, the average free cash flow to total debt ratio of approximately 5.04x reflects the emphasis on cash generation relative to outstanding debt.

These are historical starting characteristics of the selected portfolios, not forecasts of future dividend growth, profitability, or financial performance.

The objective is to identify businesses that can grow their earnings and distributions over time, rather than maximize the amount of income received on the day an investment is made.

The Long-Term Investment Objective

The Yieldr 4 Factor Strategy has two primary objectives.

1. Target a Long-Term CAGR of 12%

The first objective is to develop a stock selection methodology capable of targeting a 12% compound annual growth rate over the long term.

CAGR measures the annualized rate at which an investment grows over a specified period, accounting for compounding.

A 12% annualized return would allow an investment to approximately double every six years, assuming the return is consistently compounded.

The strategy seeks to achieve this objective through a combination of dividend income, dividend growth, and long-term business performance.

It is important to distinguish this target from a guaranteed or expected annual return. The strategy will experience periods of underperformance, and there is no assurance that it will achieve a 12% CAGR.

2. Generate a Growing Stream of Dividend Income

The second objective is to generate an increasing stream of dividend income over time.

Rather than concentrating exclusively on the highest current yields, the strategy looks for companies with a history of growing their dividends and the business characteristics that may support future increases.

This approach recognizes that the income generated by a portfolio can grow through two primary sources:

Dividend increases from the underlying companies.
Reinvestment of dividends to acquire additional shares.

Over longer periods, these two sources can contribute to the growth of portfolio income.

The strategy therefore places a greater emphasis on dividend growth and business quality than on maximizing the initial yield.

Historical Performance: Real-Time 4 Factor Strategy Tracking

A stock selection methodology is only part of an investment strategy. It is also important to evaluate how the selected companies perform over time.

To better understand the potential results of the 4 Factor Strategy, Yieldr has maintained a real-time model performance tracking exercise since June 2023.

Unlike a traditional historical backtest that applies today’s selection criteria to historical financial data, these selections are recorded when they are made and tracked over their subsequent investment periods.

This provides a way to evaluate how the methodology’s selections have performed across different market environments.

How the Performance Tracking Works

The performance tracking uses a separate model portfolio consisting of the 20 highest-ranked companies from each monthly selection.

The methodology follows several rules:

20 stocks: Each monthly portfolio contains the 20 highest-ranked companies.
Equal weighting: Each company receives an initial allocation of 5%.
12-month holding period: Each monthly portfolio is tracked for 12 months.
Dividend reinvestment: Dividends are reinvested into the company paying them.
Total returns: Performance includes share price appreciation and reinvested dividends.
Independent tracking: Each monthly selection has its own separate 12-month performance period.

After 12 months, the tracking period for that selection closes and its final total return is recorded.

A new portfolio is selected every month, creating multiple overlapping investment periods.

This is an important distinction: the Yieldr strategy list contains 50 stocks, while the model performance tracking uses the top 20 stocks to demonstrate one possible implementation of the methodology.

The model portfolio is an illustration of how an investor could develop an investment strategy around the 4 Factor methodology. It is not a recommendation to purchase the selected stocks.

Historical Results Compared With SPY and SCHD

For additional context, each monthly portfolio is compared with the performance of the SPDR S&P 500 ETF (SPY) and Schwab U.S. Dividend Equity ETF (SCHD) over the same 12-month period.

Neither ETF is considered an official benchmark for the strategy. The comparisons simply provide additional context for evaluating the results against two widely followed investment approaches.

Across the 30 completed 12-month investment periods in the supplied performance record, the results were:

Performance

4 Factor: 18.59%
SPY: 19.93%
SCHD: 14,52%

Positive Investment Periods

4 Factor: 24 of 30
SPY: 30 of 30
SCHD: 27 of 30

The 4 Factor Strategy generated a higher average return than SCHD across the completed periods, outperforming it in 17 of the 30 monthly selections.

Compared with SPY, the results were more mixed. The strategy outperformed SPY in 14 of the 30 periods, while its average return was approximately 1.34 percentage points lower.

These results demonstrate that the strategy has not consistently outperformed the broader stock market. However, they also show that its stock selections have produced competitive results relative to a dividend-focused investment approach.

Performance Across Different Market Environments

One of the most interesting aspects of the tracking results is the variation in performance depending on the starting month.

The 2024 starting cohorts were particularly challenging.

Across the 12 completed investment periods beginning in 2024, the 4 Factor Strategy generated an average total return of approximately 2.51%, compared with 15.67% for SPY and 5.29% for SCHD.

This illustrates that selecting companies with attractive fundamental characteristics does not protect a portfolio from unfavorable market conditions or periods when other segments of the market outperform.

The results improved considerably for the 2025 starting cohorts.

Across the 11 completed investment periods beginning between January and November 2025, the strategy produced an average total return of approximately 29.87%, compared with 18.68% for SPY and 20.71% for SCHD.

The strategy outperformed SPY in all 11 of these completed periods.

Some of the strongest results came from the May, June, and July 2025 selections, which generated 12-month total returns of 50.88%, 51.38%, and 52.87%, respectively.

The variation between these periods demonstrates why it is important to evaluate an investment methodology across multiple starting dates rather than relying on a single favorable investment period.

Interpreting the Performance Results

The historical tracking results provide useful information about the methodology, but they should be interpreted carefully.

First, the 30 completed investment periods represent overlapping 12-month portfolios. They are independent monthly selections, not consecutive annual returns from a single continuously compounded portfolio.

The average return across these cohorts should therefore not be interpreted as the strategy’s CAGR.

Second, the strategy’s 12% long-term CAGR objective is a target, not a demonstrated outcome. A longer investment history and a continuously compounded portfolio record would be needed to evaluate whether that objective is being achieved.

Finally, the ongoing investment periods have not yet completed their full 12-month holding periods. Their current returns should not be treated as finalized results or included in the completed-period averages.

The performance tracking will continue to expand as additional monthly selections complete their holding periods.

How to Use the 4 Factor Strategy in Yieldr

The 4 Factor Strategy is available directly within Yieldr, where members can follow the latest rankings and explore the underlying companies.

Each company can be researched using Yieldr’s broader collection of financial data, including historical financial statements, dividend information, valuation metrics, and profitability ratios.

The strategy can serve as a starting point for investors interested in building a dividend growth portfolio or researching companies with attractive fundamental characteristics.

Rather than treating the rankings as an automatic buy list, investors can use the underlying metrics to investigate individual businesses, assess their valuations, and determine whether they fit their investment objectives.

The 4 Factor Strategy is also part of the broader Yieldr Quality Investable Universe, making it possible to explore other dividend-focused strategies and compare companies using different selection methodologies.

Is the Yieldr 4 Factor Strategy Right for Every Investor?

No investment strategy is appropriate for everyone.

The Yieldr 4 Factor Strategy is primarily designed for investors with a long-term investment horizon who are interested in dividend growth and business quality.

It is not designed to maximize current portfolio income, and investors seeking the highest possible starting dividend yield may find other approaches more suitable.

The strategy also does not eliminate the risks associated with individual stocks. Even companies with strong financial characteristics can experience deteriorating fundamentals, dividend reductions, or significant share price declines.

Investors should also consider valuation, diversification, sector exposure, and their own financial objectives before making investment decisions.

The purpose of the methodology is to provide a consistent and transparent framework for identifying dividend-paying businesses with a combination of income potential, dividend growth, financial strength, and profitability.

Final Thoughts

The Yieldr 4 Factor Strategy was developed around a simple idea: long-term dividend investing should be about more than finding companies with high starting yields.

A business that generates strong returns on capital, produces substantial free cash flow, manages its debt responsibly, and consistently increases its dividend may offer a more attractive long-term investment profile than a company selected purely for its current yield.

By combining these characteristics into a systematic stock selection process, the 4 Factor Strategy aims to identify businesses capable of supporting both long-term capital appreciation and a growing stream of dividend income.

The objective is to target a 12% long-term CAGR while steadily increasing the income generated by the underlying investments.

The real-time performance tracking provides an ongoing way to evaluate the methodology, understand its strengths and weaknesses, and observe how its selections perform across different market conditions.

Ultimately, the 4 Factor Strategy is intended to be a research and stock selection framework that investors can use to develop their own approach to quality dividend growth investing.

Explore the Yieldr 4 Factor Strategy: Visit Yieldr to follow the latest rankings and research the companies included in the strategy.