Portfolio performance in relation to quality, earnings, dividends, firm size, leverage, and return on equity

This paper examines the risk‐return performance of portfolios formed from S&P quality rankings over the time period 1970–1979. In addition, the risk‐return characteristics of the portfolios are compared with performance as measured by fundamental data regarding earnings, dividends, firm size, leverage, and return on equity. The results suggest that the S&P quality rankings are closely correlated to risk as measured by the variability of returns and earnings changes, but the rankings are not correlated with the variability of dividend changes. The quality rankings are not uniformly correlated with mean portfolio returns or mean dividend changes, nor is the relationship between quality and mean earnings changes strong. Finally, quality rankings are related to firm size and return on equity. However, relationships between quality and leverage are discernible only at the extremes.