Comparison Of Dividend-Focused Strategies In Brazil

While dividend-focused strategies are popular across various regions, not all dividend strategies or dividend indices are constructed the same way or have the same objective.

In Brazil, S&P Dow Jones Indices has three different dividend-focused strategies.

  1. The S&P Dividend Aristocrats Brasil Index, designed to measure the performance of 30 stocks in the S&P Brazil BMI that maintain increasing or stable dividends.
  2. The S&P Brazil Dividend Opportunities, designed to measure the performance of 40 of the highest-yielding stocks in the S&P Brazil BMI that demonstrate profitability.
  3. The S&P/B3 Low Volatility High Dividend Index, designed to measure the performance of the least volatile stocks among a specified group of high-dividend-yielding constituents of the S&P Brazil BMI that trade on the B3.

The three strategies are high-yield oriented, which means that constituents’ weights are determined by their 12-month dividend yield, subject to concentration constrains. The main difference is in the eligibility criteria and the member selection, as described in Exhibit 1.

Different mechanics can lead to different risk/return profiles. Over the 5- and 10- year periods, the three strategies were shown to add value compared with their benchmark, and the dividend yield achieved was around double that of the S&P Brazil BMI (see Exhibit 2).

Differences in methodologies also result in varied sector composition. Compared with the S&P Brazil BMI, the dividend strategies had lower exposure to Consumer Staples and higher exposure to Utilities. In contrast with the S&P Dividend Aristocrats Brasil Index and S&P Brazil Dividend Opportunities, the S&P/B3 Low Volatility High Dividend Index had no exposure to Energy and Information Technology, which among dividend payers tend to be relatively more volatile.

The different dividend-focused indices each have specific objectives, such as absolute high yield (in the case of the S&P Brazil Dividend Opportunities), stable, consistent dividend growth (S&P Dividend Aristocrats Brasil Index), or capturing the benefits of high dividend and low volatility strategies (S&P/B3 Low Volatility High Dividend Index). 

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