IQ INSIGHTS
Are All Dividend Equity
Strategies Created Equal?
by Matthew J. Arnold, CFA,
Senior ETF Strategist SPDR ETFs
Dividend equity investing has
experienced something of a
renaissance in recent years, as
investors have sought alternatives
to low-yielding core fixed income
assets. In addition to compensating
for the low levels of income
generated by traditional sources,
investors have been attracted by
the defensive qualities of some
dividend-based strategies.
Burnt by two severe bear markets since 2000, investors on both
sides of the Atlantic have found comfort in dividend and low
volatility equity strategies, believing each offers a means of
participating in the equity market while reducing volatility
and potential drawdowns.
But are all dividend strategies created equal? And what should
investors think about when implementing a dividend-based
approach to equity investing?
Here, we examine the results of several index-based high
dividend equity strategies and make several suggestions for
investors evaluating their dividend equity options in the
current environment.
We show that index strategies incorporating some element of
dividend sustainability, such as a requirement for constituents
to exhibit a consistent record of growing dividends, have
performed better than ‘naïve’ indexing approaches, where
constituents are selected on trailing yield alone. We also
show that dividend growth strategies have delivered in terms
of lowering volatility and reducing average drawdowns over
time. In short, we contend that not all dividend approaches
are created equal and that as with most investment strategies,
the devil is often in the detail.
A Brief Recap — The Income Challenge
The low interest rate environment of the last several years
has fundamentally changed the landscape for income-oriented
investors. Bank deposits pay near-zero interest rates, yields on
many stable net asset value cash funds barely cover expenses
and core fixed income assets currently generate meagre levels
of income. Partly as a function of the interest rate environment,
but also likely a reaction to the two brutal bear markets
experienced since 2000, dividend-based equity strategies have
recently been exceptionally popular with investors the world
over. But as with most investment approaches there are
numerous ways to gain exposure to the high dividend
equity beta.
What an investor wants to get out of their dividend-based
strategy is also a consideration. Are they looking to outperform
the cap-weighted market, be that over the short or long term?
Or are they looking to generate a little income and perhaps
invest in the equity market in a slightly more defensive
manner? Certainly, if the goal is to outperform the broad
market, results are likely be time dependent.
Dividends — being a traditional value factor — will likely
perform well during periods when stocks with value
characteristics do well. On the flipside, they will likely struggle
where growth-oriented characteristics are more highly valued
by the market. In any case, there are many things to think about
when adopting a dividend-oriented investment strategy.
IQ Insights | Are All Dividend Equity
The S&P 500 Dividend Aristocrats Index is designed to
measure the performance of large cap companies within
the S&P 500 index which have followed a manageddividends policy of increasing their dividends every year
for the last 25 years, subject to various market
capitalisation and liquidity requirements. The constituents
are equally weighted and the index is rebalanced
quarterly. The index is reconstituted annually in January.
S&P has also created ‘Dividend Aristocrats’ indices
covering other markets. The markets and a brief
description of the methodologies are detailed below:
• S&P High Yield Dividend Aristocrats index tracks
S&P 1500 companies that have grown dividends for 20
years, subject to various market capitalisation and
liquidity constraints. The index is dividend-weighted,
with all qualifying companies added to the index. This
index is the benchmark for two SPDR ETFs, one
domiciled in the US, one domiciled in Europe.
• S&P UK High Yield Dividend Aristocrats index
tracks UK companies within the S&P Europe BMI index
that have grown or maintained stable dividends for at
least 10 years. It is dividend-weighted, with only the top
30 (by dividend yield) companies included in the index.
In addition to liquidity and market capitalisation
constraints, sector weights are capped at 30%. This
index is the benchmark
for a European-domiciled SPDR ETF.
• S&P Euro High Yield Dividend Aristocrats index
tracks eurozone companies within the S&P Europe BMI
Dividend Growth versus Dividend Yield —
What Performs Best?
What makes a successful dividend equity strategy? And how
can investors go about implementing a dividend-based
strategy efficiently? From simply screening a universe of
stocks by trailing dividend yield to buying a basket of stocks
from a traditional high yielding sector such as utilities, there
are many means of gaining exposure to the dividend theme.
Many investors simply hire an active fund manager, leaving
them to build a portfolio of stocks that delivers a relatively high
level of current income.
The ‘Equity Income’ category, one of the largest fund categories
in Europe, has long been the domain of the active manager, with
passive options few and far between until a few years ago. Their
approaches vary significantly: some managers emphasise yield
alone, while others favour companies that have shown an ability
to grow their dividends over time. There are a range of index
fund and ETFs available too, from sector funds through to
funds that track customised high dividend equity indices.
State Street Global Advisors
index that have grown or maintained stable dividends
for at least 10 years. It is dividend-weighted, with only
the top 40 (by dividend yield) companies included in the
index. In addition to liquidity and market capitalisation
constraints, both sector and country weights are capped
at 30%. This index is the benchmark for a Europeandomiciled SPDR ETF.
• S&P Global Dividend Aristocrats index tracks
companies within the S&P Global BMI index that
have grown or maintained stable dividends for at least
10 years. It is dividend-weighted, with only the top 100
(by dividend yield) companies included in the index.
In addition to liquidity and market capitalisation
constraints, both sector and country weights are
capped at 25%. This index is the benchmark for two
SPDR ETFs, one domiciled in the US, one domiciled
in Europe.
• S&P Pan Asia Dividend Aristocrats index tracks
companies within the S&P Pan Asia BMI index that
have grown their dividends for at least 7 years. It is
dividend-weighted, with a maximum of 100 constituents
included in the index. The minimum number of
constituents is 40. In addition to liquidity and market
capitalisation constraints, both sector and country
weights are capped at 30%. This index is the benchmark
for a European-domiciled SPDR ETF.
Source: S&P Dividend Aristocrats index methodology papers. For more
information including full criteria and exceptions to the above, please consult
spdji.com. For information on the corresponding SPDR ETFs, please consult
spdrs.com or spdrseurope.com
Broadly speaking the various implementation options can be
divided into those that focus on dividend growth and those
that focus on dividend yield. We examine the merits of each
approach below.
According to Ned Davis Research, the sell-side research house,
US companies that have grown their dividends or initiated a
dividend payment have outperformed companies employing
alternative dividend strategies over the long term. Their
analysis compared the performance of stocks in the S&P 500
based on the company’s dividend policy. They constructed
equal-weighted portfolios of stocks that fell into the
following categories:
1. Dividend Growers and Initiators
2. All Dividend-Paying Stocks
3. Dividend Payers with no Change in Dividends
4. Non-Dividend-Paying Stocks
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IQ Insights | Are All Dividend Equity
Figure 1: Performance Since 1990 — Dividend Aristocrats
versus ‘Naïve’ Sector Strategies
%
2000
1500
1000
500
0
-500
1990
1995
— Dividend Aristocrats
— Utilities
2000
2005
— S&P 500 Equal Weighted
— Telecoms
2010
2015
— Financials
— S&P 500
Source: Morningstar Direct, S&P Dow Jones Indices. Dec 1989–Jun 2015. Equal
weighted S&P 500 Dividend Aristocrats, Financials, Telecoms, S&P 500 and Utilities
indices and the S&P 500 index. Total cumulative return in USD. Past performance is
no guarantee of future results.
Figure 2: Average Rolling Returns — Dividend Aristocrats
versus ‘Naïve’ Sector Strategies
%
16
12
8
4
0
Dividend
Aristocrats
Financials
 Average 3 Year Rolling Return
Telecoms
Utilities
S&P 500
Equal
Weighted
S&P 500
 Average 5 Year Rolling Return
Source: Morningstar Direct, S&P Dow Jones Indices Dec 1989–Jun 2015. Equal
weighted S&P 500 Dividend Aristocrats, Financials, Telecoms, S&P 500 and Utilities
indices and the S&P 500 index. Average 3 and 5 year rolling total returns (annualised)
in USD. Past performance is no guarantee of future results.
The index returns are unmanaged and do not reflect the deduction of any fees or
expenses. The index returns reflect all items of income, gain and loss and the
reinvestment of dividends and other income
Since 1972, the ‘Dividend Growers and Initiators’ averaged total
annualised returns of 9.9%, outperforming stocks in the other
three categories. ‘Dividend Payers with No Change in
Dividends’ returned 7.5% annually, while ‘Non-DividendPaying’ stocks delivered only 2.2% annually. This compared to
the 7.4% annual gain for the equal-weighted S&P 500 Index.1
They expanded their research to look at stocks in Europe, and
State Street Global Advisors
while the history is shorter (data here goes back to 1987),
results were similar with ‘Dividend Growers’ outperforming
other categories.2
Analysis of the S&P 500 Dividend Aristocrats Index provides
further evidence of strong performance from companies that
have shown the ability to grow their dividends over time. The
S&P 500 Dividend Aristocrats is an equal-weighted index
consisting of S&P 500 constituents that have grown their
dividends for at least the last 25 years. The index has history
back to 1989. We compared the performance of that index to the equal-weighted S&P 500 index, and two ‘high yield sectors’,
Telecoms and Utilities. Simply buying either or both sectors for
yield alone is perhaps an example of a naÏve investment
strategy — one that exposes investors to risks above and beyond
the exposure to the high dividend equity factor. Telecoms for
instance experienced a significant boom and bust during the
late 1990s and early 2000s, their performance the result of
sector-specific issues far more than them being historically high
dividend payers. Likewise, Utilities stocks have been bid up over
the last several years but suffered something of a setback in May
2013 when US Fed Chairman, Ben Bernanke, announced the
possibility that bond purchases would be tapered. Since one of
the attractive elements of a well-executed dividend strategy is
reduced volatility and increased downside protection, these
naïve approaches thus fall short in some regards.
As illustrated in Figure 1, our own research appears to confirm
the results of the Ned Davis’ study. The broad-based S&P 500
Dividend Aristocrats Index has outperformed the sector indices
as well as the S&P 500 equal- and capitalisation-weighted
indices. A word of warning, however: the strong long-term
results of the dividend growth strategy, as represented by the
S&P 500 Dividend Aristocrats index, should not hide the fact
that results are very much time-dependent. If one evaluated the
strategy towards the end of the 1990s for example, both naÏve
sector-based approaches would have outperformed the
Dividend Aristocrats approach.
And if we evaluate the strategies based on the average rolling
3-year returns (see Figure 2), the Financials sector strategy
actually generated a higher average 3-year annualised return.
Nonetheless, at almost a quarter of a century, the cumulative
results are indeed quite robust, incorporating the tech and
telecom boom and bust, the credit bubble and the global
financial crisis that followed.
Are Dividend Equity Strategies Less Volatile
than the Market?
We hear from investors that one of the main attractions of
adopting a high dividend-based equity strategy is the prospect
of reducing overall portfolio volatility. But have high dividend
stocks really delivered on that front?
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IQ Insights | Are All Dividend Equity
Figure 3: Price Volatility – Dividend Aristocrats versus ‘Naïve’ Sector Strategies
3 Years (%)
5 Years (%)
10 Years (%)
15 Years (%)
20 Years
Since Dec 1989 (%)
Dividend Aristocrats
9.15
10.70
13.69
Financials
9.85
16.10
24.18
12.98
13.64
13.55
21.78
22.21
21.91
Telecoms
16.63
16.81
Utilities
14.09
12.15
18.52
24.40
23.50
21.83
14.10
17.26
16.62
15.71
S&P 500 Equal Weighted
9.16
13.54
S&P 500
8.55
12.00
17.53
17.46
16.92
16.32
14.74
15.05
15.18
14.57
Source: Morningstar Direct. Dec 1989–June 2015. Equal weighted S&P 500 Dividend Aristocrats, Financials, Telecoms, S&P 500 and Utilities indices and the S&P 500 index.
Standard deviations based on total return indices using monthly data in USD. Past performance is no guarantee of future results.
Analysing the long-term results it is clear that the Dividend
Aristocrats have been less volatile than the broad market and
have also offered some downside protection. From December
1989 through to December 2013, the annualised standard
deviation was 13.77%, less than both the equal-weighted and
cap-weighted S&P 500 indices, while the average drawdown over
that period was -8.57%, also less than the broad market indices.
Clearly, in times of market stress, ‘Steady Eddies’ — companies
that have been able to grow dividends through good times and
bad times — generally hold up much better than the more
cyclical companies whose businesses experience ebb and flow in
line with the broader economic conditions. This lower volatility
combined with a strong record of returns, contributed to the
index having a higher Sharpe ratio over all time periods than all
of the alternative strategies below. The risk of single sector
strategies is clear, with financials and telecoms indices having
maximum declines of close to 80% — certainly not what is
sought by the typical dividend equity investor.
When Do Dividend Aristocrats Outperform?
Earlier, we highlighted the strong results of the Dividend
Aristocrats approach when viewed on an average rolling 3and 5-year basis. On a calendar year basis, the evidence is just
as compelling. The S&P 500 Dividend Aristocrats index has
declined in just four out of 24 calendar years — 1999, 2002,
2007 and 2008. 1999 was the tail end of the technology and
telecom boom while 2007 marked the beginning of the
global financial crisis. 2002 and 2008 were bear markets,
with the equal-weighted index declining 18.18% and 39.72%,
respectively. In these years, the Dividend Aristocrats index
declined 9.87% and 21.88%, significantly less than the broader
market. Despite the strong long-term results, the Dividend
Aristocrats index only outperformed the equal-weighted index
half the time, generally underperforming in years when the
more cyclical stocks have been favoured by the market. These
results highlight again that while companies that have shown
an ability to grow their dividends have performed well over the
long term, there have been periods where this characteristic has
not been rewarded by the market. This has implications for
investors, particularly those with a relative return orientation.
State Street Global Advisors
Figure 4: Performance Since 2000 — Dividend Aristocrats
versus ‘Dogs of the Dow’
%
400
300
200
100
0
-100
2001
2004
2008
2011
2015
— Dow Jones Industrial Average
— Dividend Aristocrats
— S&P 500
— S&P 500 Equal Weighted
— Dogs of the Dow
Source: Morningstar Direct, S&P Dow Jones Indices. Dec 2000–Jun 2015. Equal
weighted S&P 500 Dividend Aristocrats and S&P 500 indices, Dow Jones Industrial
Average, Dow Jones High Yield Select 10 index and S&P 500 index. Total cumulative
return in USD. Past performance is no guarantee of future results.
The index returns are unmanaged and do not reflect the deduction of any fees or
expenses. The index returns reflect all items of income, gain and loss and the
reinvestment of dividends and other income. Sector Weights are as of the date
indicated, are subject to change, and should not be relied upon as current thereafter.
Dividend Aristocrats versus ‘Dogs of the Dow’
Much space in investment publications has been given to the
‘Dogs and the Dow’ theory. In essence the strategy involves
‘blindly’ investing in the highest yielders in the Dow Jones
Industrial Average at the beginning of the year, at an equal
weight, and holding them until the end of the year. You might
say this is the ultimate naïve investment strategy — investing
in stocks solely based on historic dividend yield, with no
regard to sustainability or diversification — and is similar to
methodologies employed by some of the more basic dividend
equity indices currently available in the market.
While it may have beaten the Dow Jones Industrial Average —
itself an anarchic price weighted index — how has this strategy
done relative to the S&P 500 Dividend Aristocrats index?
Unfortunately, we do not have a track record going back to 1989
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IQ Insights | Are All Dividend Equity
Figure 5: Price Volatility — Dividend Aristocrats versus ‘Dogs of the Dow’
Inception
Date
Std Dev 3 Yr
(Qtr-End) USD
Std Dev 5 Yr
(Qtr-End) USD
Std Dev 10 Yr Std Dev 2001-01-01 to 2015(Qtr-End) USD
06-30 USD
Dividend Aristocrats
12/29/1989
9.15
10.70
13.69
12.97
'Dogs of the Dow'
12/29/2000
10.21
11.08
17.17
17.52
S&P 500 Equal Weighted
12/29/1989
9.16
13.54
17.53
17.57
S&P 500 TR USD
1/30/1970
8.55
12.00
14.74
14.99
DJ Industrial Average TR USD
9/30/1987
9.12
11.32
13.67
14.34
Source: Morningstar Direct, S&P Dow Jones Indices. Dec 2000–June 2015. Equal weighted S&P 500 Dividend Aristocrats and S&P 500 indices, Dow Jones Industrial Average,
Dow Jones High Yield Select 10 index and S&P 500 index. Standard deviation based on monthly total returns in USD. Past performance is no guarantee of future results.
for the Dogs of the Dow strategy, but with a history which goes
back to 2000 we have a reasonable length of time to judge its
success. It has indeed outperformed the Dow Jones Industrial
Average, but it has significantly underperformed the S&P 500
Dividend Aristocrats index.
As one might expect, the Dividend Aristocrats index has proved
to be considerably less volatile than the ‘Dogs of the Dow’ since
the inception of the official index (Dow Jones High Yield
Select 10) in 2000. Over this time period at least, the high
quality dividend growth approach has clearly outperformed
the naïve approach, both in terms of superior performance
and more favourable risk characteristics. This work seems to
suggest that dividend growth, rather than dividend yield, is the
factor that investors should evaluate when building a
dividendbased equity portfolio.
Implementing a High Dividend Equity Strategy
While the current low rate environment has contributed to the
popularity of dividend-based equity strategies, we believe they
represent a time-tested means of investing in the equity
market. We think investors considering a high dividend equity
approach should ask themselves the following questions:
1. What are we trying to achieve with our dividend equity
program? Are we solely looking to increased levels of
current income or are we also attempting to lower the
volatility of our equity portfolio and/or increase the
quality characteristics?
2. Are we attempting to outperform the broad market
indices over time and/or are we looking to capitalise
on current valuation opportunities?
3. Are we comfortable accepting the style bias present
in most high dividend strategies or will we require
offsetting investments?
4. Do we believe in active management of dividend equity
strategies or do we prefer to gain exposure to the high
dividend equity beta passively through index funds and/
or ETFs?
State Street Global Advisors
Figure 6: Sector Weighting Over Time — S&P High Yield
Dividend Aristocrats Index
%
100
80
60
40
20
0
2005
 Consumer
Discretionary
 Health Care
 Materials
2007
2009
 Consumer Staples
 Industrials
 Telecommunication
Services
2011
 Energy
 Information
Technology
2013
2015
 Financials
 Utilities
Source: FactSet, S&P Dow Jones Indices. Quarter-end sector weights.
Thoroughly considering the questions above should help
investors as they evaluate the various implementation options.
We find that the active versus passive question is often not a
case of ‘either/or’. Many investors choose to gain exposure to
asset class segments through both active and passive strategies.
Other Considerations — The Changing Shape of
Dividend Aristocrats
While the universe of US companies which have grown their
dividends each and every year for 25 years is relatively constant,
there are changes over time as companies merge and markets
evolve. This may present challenges for investors attempting to
make broad valuation calls based on what an index traded at
historically versus its current levels. If we look at the S&P High
Yield Dividend Aristocrats index for example, the benchmark
for two of our most popular SPDR ETFs (one domiciled in the
US, one domiciled in Europe) we can see that the sector weights
of that index have changed since its inception in 2005.
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IQ Insights | Are All Dividend Equity
As the chart above illustrates, the sector weights of this index
have changed over time, with less weight in financials and more
weight in consumer staples in recent times. Relative valuation
characteristics have also changed over time, and while some of
the increase in valuation of the S&P High Yield Dividend
Aristocrats index may be a function of investor demand for
high quality dividend paying companies it is also reflects the
different make-up of the index.
Figure 7: Historic Dividend Yield — S&P High Yield
Dividend Aristocrats Index Versus S&P 500
%
8
6
4
2
0
2005
2007
2009
— S&P High Yield Dividend Aristocrats
2011
2013
2015
— S&P 500
Source: FactSet, S&P Dow Jones Indices. Quarter-end trailing dividend yield (gross).
Past performance is not a guarantee of future results.
Conclusion
Figure 8: Historic Price-to-Book Ratios — S&P High Yield
Dividend Aristocrats Index versus S&P 500
%
4
3
2
1
0
2005
2007
2009
— S&P High Yield Dividend Aristocrats
2011
The exhibits below also raise an interesting question that we
will examine in a later paper. Has the strong performance of
S&P’s Dividend Aristocrats indices been purely a function of
investors rewarding companies that have shown the ability to
grow their dividends over time, or have they actually been
paying for exposure to the quality factor, typically measured by
earnings variability, debt to equity ratios and return on equity?
2013
2015
— S&P 500
High quality dividend investing has stood the test of time.
While ‘Steady Eddies’ like S&P’s Dividend Aristocrats are
unlikely to capture the imagination in the way that a Twitter
or a Facebook might, they have an enviable record of long-term
wealth generation and have delivered through the full range of
market cycles. They may offer slightly lower levels of current
income, but we believe diversified strategies incorporating
some element of dividend growth are superior to single sector
and pure yield-based approaches, offering both strong return
and risk reduction potential.
And, as we’ve shown, not all dividend strategies are equal —
judicious choice of an index that that targets consistency in
dividend growth can offer very real benefits to investors in
terms of performance.
Notes: The author would like to thank Ned Davis Research.
Source: FactSet, S&P Dow Jones Indices. Quarter-end trailing dividend yield (gross).
1
Returns of S&P 500 Stocks by Dividend Policy. 31 January 1972 to 30 September 2013. Ned
David Research. Past performance is no guarantee of future results.
2
Returns of MSCI UK and MSCI Europe ex-UK Stocks by Dividend Policy. 31 December 1987 to
30 September 2013. Ned Davis Research. Past performance is no guarantee of future results.
Past performance is not a guarantee of future results.
Further complicating the issue is the fact that S&P Dow Jones
Indices have evolved their index methodology over time, both
in terms of number of constituents — from 50 companies at
inception, to all qualifying today — and years of dividend
growth required — from 25 years at index inception to
20 years today.
State Street Global Advisors
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IQ Insights | Are All Dividend Equity
Appendix
Appendix Figure 1: Calendar Year Returns — Dividend Aristocrats versus ‘Naïve’ Sector Strategies
Dividend
Aristocrats
Financials
Telecoms
Utilities
S&P 500 Equal
Weighted
S&P 500
Dogs of the Dow
Dividend Aristocrats
Outperforms*
1990
5.65
-24.12
-14.66
-3.77
-11.94
-3.10
–
Yes
1991
38.52
59.69
15.90
17.09
35.51
30.47
–
Yes
1992
10.09
32.96
14.85
8.12
15.63
7.62
–
No
1993
4.29
11.48
20.82
15.11
15.12
10.08
–
No
1994
0.89
-3.45
-5.11
-7.89
0.95
1.32
–
No
1995
34.62
51.95
41.01
34.72
32.03
37.58
–
Yes
1996
20.89
33.33
5.49
12.18
19.02
22.96
–
Yes
1997
35.47
51.79
42.94
25.05
29.05
33.36
–
Yes
1998
16.82
12.27
54.23
12.82
12.19
28.58
–
Yes
1999
-5.37
-3.04
65.32
-11.05
12.03
21.04
–
No
2000
10.13
34.31
-39.01
56.46
9.64
-9.10
–
Yes
2001
10.82
-2.45
-18.88
-14.72
-0.39
-11.89
-4.90
Yes
2002
-9.87
-11.69
-32.14
-31.96
-18.18
-22.10
-10.75
Yes
2003
25.37
33.60
17.08
40.62
40.97
28.68
33.28
No
2004
15.46
16.74
31.69
22.40
16.95
10.88
6.94
No
2005
3.69
10.18
3.23
11.83
8.06
4.91
-4.95
No
2006
17.30
18.71
35.04
23.78
15.80
15.79
31.64
Yes
2007
-2.07
-17.69
-1.14
14.33
1.53
5.49
1.78
No
2008
-21.88
-53.93
-34.58
-29.35
-39.72
-37.00
-39.08
Yes
2009
26.56
32.16
28.24
18.59
46.31
26.46
17.86
No
2010
19.35
23.50
37.76
8.07
21.91
15.06
21.02
No
2011
8.33
-12.16
-12.97
20.45
-0.11
2.11
14.95
Yes
2012
16.94
26.07
26.50
3.82
17.65
16.00
9.92
No
2013
32.27
38.47
11.41
14.49
36.16
32.39
34.99
No
2014
15.76
15.13
22.63
29.88
14.49
13.69
10.84
Yes
2015 YTD
-0.61
-0.54
-6.00
-10.41
0.70
1.23
0.00
No
Source: Morningstar Direct, S&P Dow Jones Indices. Equal weighted S&P 500 Dividend Aristocrats, Financials, Telecoms, S&P 500 and Utilities indices and the S&P 500 index.
Calendar year total returns in USD. ‘Dogs of the Dow’ represents Dow Jones High Yield Select 10 index. ‘Dividend Aristocrats outperforms’ is yes in years when the S&P 500
Dividend Aristocrats Index outperforms the S&P 500 Equal Weighted Index. Past performance is no guarantee of future results.
The index returns are unmanaged and do not reflect the deduction of any fees or expenses. The index returns reflect all items of income, gain and loss and the reinvestment of
dividends and other income.
Appendix Figure 2: Drawdown and Risk-Adjusted Returns — Dividend Aristocrats Versus ‘Naïve’ Sector Strategies
Max Drawdown
(%)
Average Drawdown
(%)
Sharpe Ratio
10 years
Sharpe Ratio
15 Years
Sharpe Ratio
20 Years
Sharpe Ratio since
Dec 1989
Dividend Aristocrats
-44.14
-8.36
0.68
0.70
0.66
0.65
Financials
-77.35
-14.70
0.09
0.23
0.33
0.37
Telecoms
-77.90
-14.29
0.40
0.01
0.28
0.25
Utilities
-48.62
-10.40
0.44
0.39
0.41
0.38
S&P 500 Equal Weighted
-54.88
-10.85
0.47
0.43
0.49
0.50
S&P 500
-50.95
-9.72
0.44
0.17
0.42
0.44
Source: Morningstar Direct, S&P Dow Jones Indices. Dec 1989–June 2013. Equal weighted S&P 500 Dividend Aristocrats, Financials, Telecoms, S&P 500 and Utilities indices and
the S&P 500 index. Past performance is no guarantee of future results. Sharpe ratio is arithmetic calculation based on monthly returns. Risk free rate is US Treasury T-Bill Auction
Average 3 mth rate. Past performance is no guarantee of future results.
The index returns are unmanaged and do not reflect the deduction of any fees or expenses. The index returns reflect all items of income, gain and loss and the reinvestment of
dividends and other income.
State Street Global Advisors
7
IQ Insights | Are All Dividend Equity
Appendix Figure 3: Drawdown and Risk-Adjusted Returns – Dividend Aristocrats Versus ‘Dogs of the Dow’
Max Drawdown (%)
Average Drawdown (%)
Sharpe Ratio 10 Years
Sharpe Ratio Since Dec 2000
-44.14
-8.80
0.68
0.64
Dividend Aristocrats
'Dogs of the Dow'
-61.89
-12.85
0.39
0.29
S&P 500 Equal Weighted
-54.88
-12.68
0.47
0.41
S&P 500
-50.95
-11.82
0.44
0.24
DJ Industrial Average
-47.16
-10.94
0.51
0.31
Source: Morningstar Direct, S&P Dow Jones Indices. Dec 2000–Jun 2015. Equal weighted S&P 500 Dividend Aristocrats and S&P 500 indices, Dow Jones Industrial Average,
Dow Jones High Yield Select 10 index and S&P 500 index. Sharpe ratio is arithmetic calculation based on monthly returns. Risk free rate is US Treasury T-Bill Auction Average
3 mth rate. Past performance is no guarantee of future results.
The index returns are unmanaged and do not reflect the deduction of any fees or expenses. The index returns reflect all items of income, gain and loss and the reinvestment of
dividends and other income.
ssga.com
For institutional use only. Not for use with the public.
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