In the world of dividend-paying stocks, there are the usual dividend payers among the S&P 500 and then there are the Aristocrats, those stocks that have increased their payouts every year for the past 25.
No matter what the time horizon, the S&P 500 Dividend Aristocrats have outperformed the S&P 500, while experiencing lower volatility, according to a new report from S&P Dow Jones Indices.
These 50 securities, equally weighted, have had an annual return of 11.9% between January 31, 1990 and April 29, 2016 compared to 9.2% for the broader S&P 500, according to a the report.
During that same time period the annual volatility of the Dividend Aristocrats index was 13.5% compared to 14.6% for the broader index. That combination of higher return with lower volatility resulted in a higher 0.9% annual risk-adjusted return (return dividend by volatility) compared to a 0.6% for the S&P 500 overall.
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The Dividend Aristocrats index also has a higher yield than the S&P 500, ranging between 2% and 4.4%from January 1998 to January 2016, almost double the yield of the broader S&P 500 during that same time period.
In addition, its maximum loss between peak and trough was 44.1% versus almost 51% for the S&P 500 and the average outperformance, was 54% for all months between January 31, 1990 and April 29, 2016.
The majority of the outperformance of the Dividend Aristocrats is due to security selection and “the interaction effect” between security selection and portfolio allocation, according to the S&P Dow Jones Indices report.
The Aristocrats index is much more broadly diversified than the S&P 500 despite its higher concentration of assets – 50 stocks compared to 500. It includes 10 industry sectors while “many dividend-yield strategies … tend to be concentrated in the financials and utilities sectors to achieve a high yield,” according to the S&P Dow Jones Indices report.
As of December 2015, financials comprised just under 12% of the Aristocrats index while utilities accounted for 2%. Consumer staples led with 26%, followed by industrials,16.4%, and health care, 13.5%.
In addition, no sector in the Aristocrats index can have a weighting of more than 30% when the index is rebalanced every quarter, after the close of the last trading day for that quarter.