ETF investors who are still worried about market conditions can look to a quality strategy that focuses on the elite Dividend Aristocrats to rise above the uncertainty.
On the recent webcast, Uncertain Equity Markets and the Dividend Aristocrats, Aye Soe, Managing Director of Global Research & Design at S&P Dow Jones Indices, highlighted the importance of dividends on returns, pointing out that dividends have contributed to approximately 28% of total return of the S&P 500 since 1960.
Soe added that being consistent in dividend payouts also paid off as those that have consistently increased dividends exhibited higher returns and lower volatility, compared to their broad stock market benchmarks. Dividend payers have outperformed non payers and the broader market, producing a higher Sharpe ratio or improved risk-adjusted returns, with a lower standard deviation and greater performance relative to their benchmarks.
Simeon Hyman, Director and Global Investment Strategist at ProShares, underscored the long-term outperformance and lower volatility associated with dividend growers. In the period between 1987 through 2017, dividend growers within the Russell 3000 generated an annualized 13.8% return with an annualized volatility of 14%. In comparison, dividend non-changers returned 10.2% with a 17% volatility, dividend non-payers returned 7.7% at 24% volatility, and dividend cutters saw a 6.5% return with 22% volatility.
“There are common traits that define high quality companies that grow their dividends. They tend to have long histories of profit and growth. They typically have strong fundamentals and stable earning streams. And their strength comes from the top, from management teams with conviction and a firm commitment to shareholders,” Hyman said.