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S&P High Yield Dividend Aristocrats Part I: Strategy Characteristics

Sep. 10 2019 — With the 10-Year Treasury yield around just 1.5% and the potential for more interest rate cuts on the horizon, yield-seeking investors may become more interested in equity dividend yield strategies. Dividend strategies can satisfy investors’ needs in several regards, namely higher dividend income, favorable risk-adjusted returns, lower volatility, and more downside protection in bearish market environments.

Here and in subsequent blogs, we introduce the S&P High Yield Dividend Aristocrats®. We will cover its methodology and yield characteristics, risk/return profile, and performance attribution.

The S&P High Yield Dividend Aristocrats was launched in November 2005. The index is designed to track a basket of stocks from the S&P Composite 1500® that have consistently increased their total dividends per share every year for at least 20 consecutive years.[1] The index universe covers large-cap, mid-cap, and small-cap stocks in the U.S. equity market.

As shown in Exhibit 1, the S&P High Yield Dividend Aristocrats has consistently had higher yields than its benchmark. The average yield of the index was 3.5%, ranging from 2.5% to 5.8%. In contrast, the average yield of the S&P Composite 1500 was 1.8%, with a range from 1.5% to 2.8%. On average, the dividend yield gap between these two indices was 1.7%.

For comparison purposes, Exhibit 2 lists recent yields of selected securities and indices. As of July 31, 2019, the S&P High Yield Dividend Aristocrats had a dividend yield of 2.8%, which was higher than the yields of the other securities and indices shown, with the exception of the S&P 500 Bond Index.

Exhibit 2 current yield comparisan chart

In the next blog, we will take a deeper dive into the risk/return profile of the S&P High Yield Dividend Aristocrats.

[1] For further information about the index, please see the S&P High Yield Dividend Aristocrats Methodology.