Last December, in a prior blog, we introduced the S&P 500^® High Dividend Growth Index, an innovative index that utilizes the S&P Global Dividend Forecasting Dataset to incorporate a forward-looking assessment when selecting constituents. The index is unique since it tracks companies in the S&P 500 that have not only consistently grown their dividends in the past, but also have the highest forecast dividend yield growth.

In this blog we will examine the index’s strong performance, with a particular emphasis on the short term given that the index was launched in Q4 2023. Furthermore, since the index’s methodology emphasizes a blend between high dividend yield and dividend growth, we will compare those metrics versus the S&P 500, in addition to providing a snapshot of current sector allocations.

Performance Summary

As Exhibit 1 shows, on a YTD and one-year basis, the S&P 500 High Dividend Growth Index has materially outperformed most dividend strategies by posting a 7.06% and 23.37% return over those time periods, respectively. Over the longer term, the index has kept pace with the S&P 500—no easy task as growth stocks have significantly outperformed value and dividend-oriented stocks over this time period.

The strong performance of this index may be attributed to its unique approach to dividend growth. By incorporating analysts’ forecasted dividend growth rates (which are partly based on fundamentals growth) in the selection and weighting process, the index may be being boosted by some of the growth factor’s strong performance over the short and long term.

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Index Characteristics

Exhibit 2 displays the S&P 500 High Dividend Growth Index’s trailing 12-month dividend yield since April 2011. Over the full period, the index has averaged a 3% dividend yield, which is over 50% higher than the S&P 500 and S&P 500 Equal Weight Index. As of May 31, 2024, it’s trailing 12-month dividend yield was 3.43%, more than double the S&P 500’s yield of 1.35% and approximately 14% higher than its long-term average of 3%.

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Exhibit 3 displays the annualized dividend growth rate for the respective indices since April 30, 2011. Over this period, the S&P 500 High Dividend Growth Index has grown its dividends by 10.65%, well above the S&P 500’s 8.82% dividend growth rate over that time. The combination of high current dividend yield plus high dividend growth is a result of selecting constituents with the highest forecasted dividend yield growth. By selecting based on dividend yield growth as opposed to dividend per share growth, the index has tended to provide a blend of both current yield and future dividend growth.

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Exhibit 4 shows the sector weights of the S&P 500 High Dividend Growth Index as of May 31, 2024. Perhaps unsurprisingly for a dividend strategy, the Utilities sector possesses the highest weight at 23.7%, followed by the Financials and Real Estate sectors with 18.0% and 12.9%, respectively. The low weight of the Materials sector is likely due to its growth focus and the sector’s tendency to have less growth and more value exposure.

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Conclusion

The S&P 500 High Dividend Growth Index has exhibited strong long-term performance and has recently outperformed both high dividend yield and high dividend growth strategies. In addition to strong performance, the index has historically provided a blend of current dividend yield plus dividend growth. The S&P 500 High Dividend Growth Index may serve as a tool to explore the potential applications of a dividend strategy that also incorporates a forward-looking assessment for constituent selection.

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