What’s Next for Dividend Investing?
Dividend strategies have been popular in recent years as Treasury yields fell from nearly 4% to below 2%. While longer-term performance of dividend strategies generally has been strong, more recent performance has been softer, leading many to wonder what lies ahead. Concerns over slowing global growth, uncertain economic forecasts as well as a changing interest rate environment may likely keep volatility levels higher than what we’ve seen over the last few years.
But not all dividend strategies are created equal. Those focused on dividend growth, particularly outside the traditional domestic large-cap space, have delivered strong performance in an otherwise challenging environment.
Finding Dividend Growth Opportunities Across Your Portfolio
Although not an obvious choice for dividend investors, dividend growth strategies in the mid-cap and small-cap space have shown strong potential. Since their inception, the Russell 2000 Dividend Growers Index and the S&P MidCap 400 Dividend Aristocrats Index, which focus on companies with the longest track records of year-over-year dividend growth, have outperformed the broader market with lower levels of volatility.
Dividend Growers Outperformed the Broader Market—With Less Volatility
Small-Cap: November 11, 2014 – January 31, 2016
(Source: Bloomberg. Start date is as of Russell 2000 Dividend Growers Index inception. Past performance does not guarantee future results. Index returns are for illustrative purposes only.)
Mid-Cap: January 5, 2015 – January 31, 2016
(Source: Bloomberg. Start date is as of S&P MidCap 400 Dividend Aristocrats Index inception. Past performance does not guarantee future results. Index returns are for illustrative purposes only.)