Their backtest methodology was:
Specifically, we took a two-stage process of first creating three dividend yield baskets by yield, then within each of these three baskets, categorizing stocks by payout ratio: low, medium, and high. Equal-weighted portfolios of these baskets were created based on dividend yields and payout ratio as of each quarter end. We repeat the process each quarter. Our back test for this analysis is from January 1990 to June 2006. We use S&P indexes as our universe.
The HYLP (high yield, low payout) stocks returned, on average, about 19.2% pa, compared to the S&P of 11.2% pa, for the period 1995 to 2006. HYLP were consistently in the top half of the baskets for the period 2001-2006. The basket of stocks not paying a dividend also beat the S&P 500, although its relative positioning was spottier.
Their methodology might be a great starting point for building a value-based portfolio.