Indexology^® Blog

The S&P High Yield Dividend Aristocrats^® tracks companies that have grown their dividends for a period of at least 20 consecutive years, offering equity participation and the potential for enhanced dividend income.

Our recent blog highlights that the dividend growth rate for the S&P High Yield Dividend Aristocrats has exceeded inflation over the long term (2000-2023). In this blog, we extend this analysis to look at how the index has performed across past macroeconomic cycles. Our framework identifies four economic regimes that are determined by the strength and direction of both growth and inflation (see Exhibit 1).

Let’s now delve deeper into the performance data by examining the excess returns over the benchmark (S&P Composite 1500^®) as well as the total returns for each type of cyclical outcome (see Exhibits 4 and 5).

Periods of rising growth (as defined in Exhibit 1) have historically been in tandem with strong performance for equity markets (see Exhibit 4), with growth style stocks delivering outperformance. The “Goldilocks Zone”—the period of rising growth and falling inflation—is generally the period with highest excess returns versus the benchmark. However, dividend indices such as the S&P High Yield Dividend Aristocrats have a tilt toward value, and so there is a tendency for the index to underperform the benchmark in this environment. Regardless of the direction of inflationary pressure, in rising growth markets the average monthly S&P High Yield Dividend Aristocrats return has lagged the S&P Composite 1500 benchmark by 0.35%.

In periods of slowing growth when markets are falling, the downside protection characteristics of the S&P High Yield Dividend Aristocrats tend to be favorable. The index methodology encompasses strict dividend qualification criteria, which leads the index to track higher quality companies that may offer resilience at this time.

In a slowing growth but rising inflation backdrop, the S&P High Yield Dividend Aristocrats had a monthly average total return of 0.39%, which is around 120 bps of outperformance. Inflationary environments have historically tended to favor short-duration stocks such as Dividend Aristocrat companies. In slow growth periods where inflation is falling, the S&P High Yield Dividend Aristocrats’ performance has been in line with the benchmark.

The S&P High Yield Dividend Aristocrats has historically provided stable consistent long-term dividend growth and robust performance, with enhanced dividend yields. The index has traditionally participated on the upside but has shown defensive positioning in falling markets due to lower volatility.

¹ OECD CLI data https://data.oecd.org/leadind/composite-leading-indicator-cli.htm , OECD CPI data https://data.oecd.org/price/inflation-cpi.htm.

Not all dividend strategies are created equal. Discover how the S&P Dividend Aristocrat Indices screen for companies with a long track record of stable and increasing dividends to identify quality dividend growers and avoid the dreaded dividend trap.

Explore the expanding ecosystem of the iconic S&P 500 as S&P DJI’s Tim Edwards joins Cboe’s Sarju Gudka for a closer look at how and why market participants are putting the definitive gauge of U.S. large-cap equities to work in the Middle East.

The iBoxx USD Emerging Markets Broad Overall Indices represent the most comprehensive fixed income hard currency snapshot of the market due to their broad methodology construction. Join S&P DJI’s Anu Ganti and Cboe’s Mandy Xu as they explore why emerging market bonds are coming back into focus for some yield seekers and how these new tools are helping them make more informed decisions.

Is it possible to track opportunity with an index? Find out as S&P DJI’s Tim Edwards and Cboe’s Mandy Xu discuss the design of and practical applications for the Cboe S&P 500 Dispersion Index.