High Dividend Yield Screen on UK Stocks: 5.67% CAGR (LSE Backtest)
We backtested a high dividend yield screen with quality filters on UK stocks (LSE) from 2000-2025. 5.67% CAGR with +4.45% annual alpha over the FTSE 100. The quality filters nearly quintupled the index return.
We ran the same high dividend yield quality screen on UK stocks (LSE) from 2000 to 2025. The result: 5.67% CAGR with +4.45% annual alpha over the FTSE 100. The UK has one of the strongest dividend cultures in the world, and the screen found plenty of qualifying stocks (19.2 average). While UK equities broadly underperformed US equities over this period, the strategy handily beat the local benchmark, winning 64% of years.
Contents
- Method
- Results
- Key Annual Returns
- The UK Dividend Story
- When It Works
- When It Struggles
- Limitations
- Part of a Series
- References
Data: FMP financial data warehouse, 2000–2025. Updated March 2026.
Method
Data source: Ceta Research (FMP financial data) Universe: LSE-listed stocks with market cap > 500M GBP (~$635M USD) Period: 2000-2025 (25 years) Rebalancing: Annual (July)
Same signal as the US analysis: dividend yield 4-15%, payout 0-80%, FCF > 0, ROE > 8%, D/E < 2.0. Top 30 by yield, equal weight.
Results
| Metric | Strategy | FTSE 100 |
|---|---|---|
| CAGR | 5.67% | 1.23% |
| Total Return | 297% | -- |
| Max Drawdown | -24.95% | -- |
| Sharpe Ratio | 0.132 | -- |
| Sortino Ratio | 0.294 | -- |
| Calmar Ratio | 0.227 | -- |
| Win Rate (vs FTSE) | 64% | -- |
| Up Capture | 130.0% | -- |
| Down Capture | 37.4% | -- |
| Beta | 0.846 | -- |
| Alpha | 4.10% | -- |
| Cash Periods | 6/25 (24%) | -- |
| Avg Stocks | 19.2 | -- |
The strategy delivered 4.10% annualized alpha over the FTSE 100, with up capture above 100% and down capture below 40%. That combination means the portfolio captured more upside and far less downside than the index. The lower max drawdown (-25.0% vs FTSE downturns) confirms the quality filters provide genuine downside protection.
Key Annual Returns
| Year | Strategy | FTSE 100 | Excess |
|---|---|---|---|
| 2006 | +18.6% | +12.0% | +6.6% |
| 2007 | -12.0% | -17.7% | +5.7% |
| 2008 | -5.3% | -22.0% | +16.6% |
| 2009 | +27.9% | +14.3% | +13.6% |
| 2010 | +26.9% | +24.4% | +2.6% |
| 2011 | -6.3% | -6.3% | 0.0% |
| 2012 | +28.5% | +11.8% | +16.8% |
| 2013 | +20.1% | +8.1% | +11.9% |
| 2014 | -0.6% | -2.7% | +2.2% |
| 2015 | +0.9% | -1.6% | +2.5% |
| 2016 | +27.5% | +13.1% | +14.4% |
| 2017 | +0.0% | +2.3% | -2.3% |
| 2018 | -7.9% | +0.2% | -8.1% |
| 2019 | -18.5% | -17.4% | -1.0% |
| 2020 | +52.3% | +14.1% | +38.1% |
| 2021 | -11.8% | +1.5% | -13.3% |
| 2022 | +13.1% | +4.1% | +9.0% |
| 2023 | +8.7% | +7.9% | +0.8% |
| 2024 | +8.0% | +8.0% | -0.1% |
The UK Dividend Story
The UK has historically been one of the world's highest-yielding stock markets. FTSE 100 yields have regularly exceeded 3.5%, far above S&P 500 averages. Shell, BP, HSBC, Unilever, and GlaxoSmithKline are staples of income portfolios globally.
But high yields in the UK partly reflect low growth expectations. UK GDP growth has lagged the US, and UK equities have de-rated over the past decade. The FTSE 100 in 2025 is only modestly above its 2000 level in price terms, though total returns including dividends are meaningfully better.
Against that backdrop, the quality screen's +4.45% alpha is a strong result. The FTSE 100 returned just 1.23% annualized, and the quality filters nearly quintupled that.
When It Works
2008 (crisis resilience): Only -5.3% while the FTSE 100 fell -22.0%. That's a 16.6-point excess. UK dividend payers, especially defensive names like utilities and consumer staples, held up remarkably well.
2009 (recovery): +27.9%, beating the FTSE by 13.6 points. Quality dividend payers bounced as credit markets normalized.
2012-2013: Back-to-back blowout years, beating the FTSE by 16.8 and 11.9 points respectively. The quality tilt paid off as UK large-caps stagnated.
2016 (post-Brexit bounce): +27.5%, beating the FTSE by 14.4 points. Despite the shock of the Brexit vote in June, UK dividend stocks recovered quickly as the weaker pound boosted exporters.
2020: +52.3%, the single best year. Quality dividend payers rebounded aggressively from COVID lows while the FTSE 100 managed only +14.1%.
When It Struggles
2018: -7.9% while the FTSE was roughly flat. Brexit uncertainty weighed on the quality names more than the index.
2021: -11.8% while the FTSE gained +1.5%. Post-COVID rotation favored cyclicals and growth over the quality dividend screen's typical holdings.
Limitations
FTSE stagnation: The UK benchmark's low return (1.23% CAGR) makes the strategy's alpha look large. In absolute terms, 5.67% is modest compared to US or Asian markets.
Brexit effects: The 2016-2020 period introduced unusual currency and political volatility. GBP weakened significantly, which inflates returns in local terms but dilutes them in USD.
Sector composition: UK high-yield portfolios lean heavily toward energy (Shell, BP), financials (HSBC, Lloyds), and pharma (GSK, AstraZeneca). Sector-specific risks dominate.
Data: Ceta Research (FMP financial data warehouse). Universe: LSE, market cap > 500M GBP. Backtest: 2000-2025, annual July rebalance. Past performance does not guarantee future results.
Part of a Series
This is the UK analysis. See also: - High Yield Quality on US Stocks - 12.08% CAGR, full methodology - High Yield Quality Across 12 Global Exchanges - full comparison
References
- Fama, E. & French, K. (1998). "Value versus Growth: The International Evidence." Journal of Finance, 53(6), 1975-1999.
