What are the key takeaways from the first 20 years of the S&P High Yield Dividend Aristocrats? S&P DJI’s Rupert Watts and State Street Global Advisors’ Colin Ireland explore key lessons and potential applications for S&P HYDA in its 20th anniversary year.
How has index construction influenced performance over the past 20 years?
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Rupert Watts:
Obviously, it's an exciting year for the S&P High Yield Dividend Aristocrats this year, given that it's celebrating its 20-year anniversary, which is obviously quite a milestone for a dividend index. And I think over that period, there's really been three core performance characteristics that have stood out. The first being its defensive qualities, the second being its strong total returns, and the third being its competitive high yields.
In terms of the defensive qualities, obviously a stringent selection criteria for the index is that every single constituent must have raised its dollar dividends every year for a minimum of 20 consecutive years. And as you can imagine, the types of constituents that it tends to track tend to be, you know, higher quality and exhibit defensive characteristics in the form of lower volatility and lower downside capture.
In terms of the total returns, obviously a key consideration for a dividend strategy is the fact that you can benefit from the price appreciation through equity participation. And since the live date, the index has generated an annualized return of 9.5%, which is obviously pretty competitive and we actually assess the performance against a group of actively managed equity income funds, and over the last 10 years, it's outperformed the majority of funds within that category.
And then lastly, on the yield side, the index has consistently outperformed the benchmark, and over the last 20 years has averaged a yield of around 3.2% compared to the benchmark S&P Composite 1500, which has an average yield of around 1.7%.
How has the index held up during periods of inflation historically?
Rupert Watts:
Another key consideration when selecting a dividend strategy is whether it can preserve purchasing power through the dividend payments, and basically the degree that it can protect against inflation is dependent on a variety of factors, some of which are the type of a constituent or the number of years of consistent dividend growth.
As we spoke about earlier, the core criteria for this index is that constituents must have raised their dollar dividends every year for a minimum of 20 consecutive years across a range of macroeconomic environments, and constituents tend to be, you know, higher quality. And basically since the index went live, the annualized dividend growth rate has been about 5.5%, which easily outperforms the CPI rate, which has averaged about 2.5% over the same period and at least goes to show historically that it's tended to preserve purchasing power.
What economic environments have favored S&P HYDA historically?
Colin Ireland:
So the S&P High Yield Dividend Aristocrat strategy tends to outperform in periods of market volatility, economic downturns and recessionary environments, and this is when investors are looking for the defensive characteristics of blue-chip stocks. These are companies with strong balance sheets, and they're committed to their dividend over a long period of time.
So any investor that's evaluating solutions in their equity sleeve for portfolio diversification and to reduce volatility, volatility dampening effect, have a great opportunity to look at this as a core solution. I mentioned the great financial crisis, and then we also have a myriad of events over the last two decades to point to.
What are some of the potential applications of S&P HYDA in the current climate?
Colin Ireland:
So I'll give you three applications of the S&P High Yield Dividend Aristocrats strategy in the current environment.
Number one, a portfolio ballast for the Mag 7 glamour stocks. Most investors still overweight growth right now, and for a lot of good reasons. The S&P High Yield Dividend Aristocrats' constituents have valuations that are less stretched relative to cap-weighted indices and obviously the growth names, and they've exhibited a low-volatility bias in early 2025.
Number two, the strategy derives a higher proportion of revenues from the United States, about 74% of revenues are U.S.-based versus about 57% for the S&P 500 and 59% for the S&P Composite 1500. So anybody concerned about trade wars and tariff implications, this is a great way to take that home bias tilt.
And then third, the strategy has an overweight to Industrials and Utilities, two sectors that have a higher sensitivity to inflation than the S&P 500 and are a great way for investors to take a longer-term view in terms of their dividend yield and their yield generation strategies in their portfolio.
Closing:
For more information on the S&P High Yield Dividend Aristocrats, visit spglobal.com/spdji.
