I found an interesting paper from S&P Dow Jones on the Dow Jones Dividend 100 Indices. This is the index used behind the popular dividend ETF Schwab U.S. Dividend Equity ETF (SCHD).
I've previously discussed the Schwab US Dividend Equity ETF here.
But let's dive into the paper:
They discuss the overall differentiating factors behind the success of these indices
- Sustainable dividends with financial quality
- Dividend growth against future rising rates
- Investability
They shared the construction methodology behind the Dow Jones 100 Dividend Indices
It's a good process to learn from, whether you are a DIY or ETF investor
S&P found that dividend stocks generate strong returns from dividends and capital gains
They calculated total returns between June 2001 and June 2023 for the Dow Jones U.S. Dividend 100 Index
They found that the dividend index generated a total return of 11.70% annualized, beating the 10.20% for the total market index
Why has that Dividend Index done well?
It's due to its focus on quality, financial stability, which makes it easier to endure tough economic times and thrive during the good times
Dividend Strategies tend to shine during major historical drawdowns
There are several of those listed since 1999:
They also listed the sector weightings:
Contrary to popular beliefs, this strategy has fair allocation accross multiple sectors. It's not the "utilities and financials only"
This is the part that triggers me - I dislike the high turnover of this index.
In my opinion they are losing out on returns by selling their companies too quickly
Next, they showed the spread in dividend yields between US and International overall. For the broader US market, this is due to the increased use of share buybacks in the US vs abroad
I found this chart on sector trends and characteristics informative
You can read the whole paper here:
