For investors searching for dependable sources of long-term equity income, the S&P series of Dividend Aristocrats indexes are valuable destinations.
For example, the famed S&P 500® Dividend Aristocrats® Index requires that member firms have dividend increase streaks of at least 25 years. Perhaps unbeknownst to novice investors, it’s possible to pair dividend growth with environmental, social and governance (ESG) principles. Enter the S&P ESG Dividend Aristocrats (ESG DA) Index Series.
Relative to its non-ESG equivalent indexes, the S&P ESG Dividend Aristocrats (ESG DA) Index Series is new on the dividend benchmark scene, but it’s already displaying some noteworthy benefits.
“2021 was challenging for stock markets globally, with the return of central banks tightening globally and rising inflation after years of declining yields. Nonetheless, the S&P ESG Dividend Aristocrats Index Series managed to ride this period delivering similar and often better performance compared to its non-ESG counterparts,” noted S&P Dow Jones Indices.
Additionally, data confirms the ESG aristocrats are holding up nicely compared to the non-ESG aristocrats’ indexes, confirming investors can combine ESG with dividend growth without having to make sacrifices.
“Over the past 12 months, the S&P Dividend Aristocrats Index Series offered comparable dividend yields and delivered a sizable yield pick-up compared with the benchmark,” added S&P Dow Jones.
Over the past year, the yield of the S&P ESG Dividend Aristocrats Indices increased, tightening the spreads between those indexes and the non-ESG equivalents. It’s possible that the deficit persists, though it’s not a negative commentary on the ESG dividend gauges.
“Although the yield was still lower, the spread has been tightening. The current market dynamics may be driving these fluctuations in yield spreads. However, it is worth noting that with additional screens applied to the ESG versions of Dividend Aristocrats, yields of the S&P ESG Dividend Aristocrats Indices could remain at a discount to their non-ESG counterparts,” according to S&P Dow Jones.
As is par for the course with any dividend index, advisors and investors should stay abreast of sector-level attribution. In the case of the ESG dividend aristocrats, those indexes are currently underweight utilities stocks relative to their non-ESG relatives. That makes sense because utilities are one of the sectors with the highest ESG risk. As such, the group is usually underweight in a variety of ESG strategies.
“The reason for the Utilities underweight may lie in the index methodology, which excludes companies involved in thermal coal, among others. Compared with 2021, we didn’t identify any major trends in sector weights that remained broadly similar in both versions,” concluded S&P.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.