Although S&P 500 members that do not pay dividends outperformed their dividend-paying peers last year, there is no denying that over the long-term, dividends account for a substantial portion of a portfolio’s returns.
Dividends are nice, but dividend growth is even better. From 1972 through 2012 companies that initiated or consistently raised dividends delivered better returns and were less volatile than the companies either did not pay, cut or kept dividends stagnant, according to Ned Davis Research.
Over that time, dividend raisers and initiators had an average annual returns of 9.5% with a standard deviation of 16.2%. Dividend payers with no changes to their payout policies rose had average annual returns of 7.2% with an average standard deviation of 18.4%. [First Trust Debuts Dividend Achievers ETF]
Clearly, dividend growth works in favor of investors with longer time horizons. Not surprisingly, several indices designed to track the so-called dividend achievers, or those stocks with noteworthy dividend increase streaks, have delivered solid returns. NASDAQ OMX Global Indexes issues Dividend Achiever index family, a group that includes the index used by the popular Vanguard Dividend Appreciation ETF (NYSEArca: VIG). [These Dividend ETFs and Indices Jumped in 2013]
Those indices also include the NASDAQ International Dividend Achievers Index, which requires a minimum five-year dividend increase streak for admission. Investors can access that index and global dividend growth via the $1 billion PowerShares International Dividend Achievers Portfolio (NYSEArca: PID).