2007 - bad year for income/dividend investing?

With the success growth stocks had in 2007, it is easy to point to dividend/income stocks as under/non-performers. An article in Economist December 13th writes (http://economist.com/finance/displaystory.cfm?story_id=10286619):

Those funds that invest on the basis of dividend income have also suffered badly. Alex Stewart, a strategist at Dresdner Kleinwort, says 2007 has been an annus horribilis for income investing.

As always, it depends. Using the backtester I tested the common Silver_Parachute screen (a dividend screen using a 26 week momentum sort) invented by DrBob:

Define {Silver_Parachute}
Uses [SI Price] [SI Volume--Average Daily 10d] [SI Yield] [SI Price Change 26 week]
Deblank [SI Price] [SI Volume--Average Daily 10d] [SI Yield] [SI Price Change 26 week]
Keep :[SI Price]>5
Keep :[SI Volume--Average Daily 10d]>10
Keep :[SI Yield]>=10
Sort Descending [SI Price Change 26 week]
End

Holding the top 10 stocks for four weeks, averaged across the first four possible starting weeks in 2007 gives the average return of 35% (GSD 25). The worst of these four rounds gave CAGR/GSD of 23/21. Not bad at all. That's using Friday's closing prices for sells and buys, which isn't possible of course since the picks are actually generated the following Sunday using Friday's closing data. This only shows the returns from price appreciation, not the dividends themselves. DrBob's tests have shown average yields from the picks of this screen to average 10%-15% per year, which is in addition to the average 35% return quoted.

As a lot of research have shown, delaying trades by a few days usually does not matter a lot. Using the following Monday (or next market day if Monday isn't) closing price, the numbers become 33/26 (average), 19/24 (min) and 46/24 (max). Trading at Monday open gives 34/25 (average), 24/23 *min) and 46/24 (max).

Not bad at all. Income/dividend investing using a momentum sort as exemplified by the Silver_Parachute screen certainly wasn't bad in 2007.