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Dividend Growth and Equity Participation: Insights from S&P U.S. Dividend Growers Index

As the 10-year U.S. Treasury yield hovers above 4.0%, it’s possible that market participants can find yields without assuming excessive risk. However, a significant challenge remains: protecting against inflation and preserving purchasing power. For example, due to inflation, USD 1,000 in December 2005 was equivalent to only USD 606 as of June 2025. In contrast, dividend strategies can be appealing, since companies often grow their dividends over time and offer the potential for capital appreciation.

In June 2021, S&P DJI launched the S&P Dividend Growers Indices. The S&P U.S. Dividend Growers Index tracks companies within the S&P United States BMI universe that have consistently increased their regular cash dividends per share annually for 10 consecutive years. To avoid value traps, the index excludes the top 25% of highest-yield ranked stocks from its universe.¹ In this blog, we will examine the historical dividend growth, as well as risk and return statistics for this index, highlighting its tendency to track higher quality companies.

Dividend Growth versus Inflation

Over the long term, the S&P U.S. Dividend Growers Index has increased its dividends at a rate that exceeds inflation, thereby preserving purchasing power. From 2006 to 2025, the dollar dividends for this index grew at a compound annual growth rate (CAGR) of 6.46%, easily outpacing the Consumer Price Index (CPI)² inflation rate during the same period.

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Equity Participation with Defensive Qualities

While income-oriented investors may gravitate toward bonds for their predictable interest payments and return of principal at maturity, dividend strategies offer regular cash flows through dividends, along with the added benefit of equity participation. Over the past 15 years, the S&P U.S. Treasury Bond 10+ Year Index underperformed the CPI, with an annualized return of just 2.23%. In contrast, the S&P U.S. Dividend Growers Index showed a notable annualized return of 13.38% over the same period.

Moreover, the S&P U.S. Dividend Growers Index delivered this performance with defensive qualities, indicating that companies capable of consistently growing their dividends may be of higher quality. As shown in Exhibit 2, the index has demonstrated lower volatility than the S&P United States BMI across all periods studied, allowing it to outperform its benchmark on a risk-adjusted basis. Historical capture ratios indicate that the S&P U.S. Dividend Growers Index had strong participation in up markets,³ while delivering substantial outperformance during down markets.

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Defensive Traits with Quality and Value Tilts

In Exhibit 3, we used the Fama-French Three-Factor Model⁴ and AQR Quality⁵ factors to analyze the historical returns of the S&P U.S. Dividend Growers Index. The factor loading estimates and associated t-statistics reveal that the index constituents exhibited positive exposures to lower beta (less than 1), larger size, higher value and higher quality. The empirical results indicate that the index exhibited more defensive characteristics (lower risk), along with superior quality and valuation features compared to the overall market. High quality fundamentals serve as the foundation for consistent dividend increases.

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Summary

With its consistent dividend growth, the S&P U.S. Dividend Growers Index has exhibited dividend growth that has outpaced inflation while delivering strong performance in terms of both absolute and risk-adjusted returns.

¹ For further information about the index, please see S&P Dividend Growers Index Series  Methodology.

² U.S. Bureau of Labor Statistics, Consumer Price Index for All Urban Consumers, retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/CPIAUCSL.

³ The market is defined as the monthly performance of the underlying benchmark from March 31, 2006, to June 30, 2025.

⁴ Fama, E. F. and K.R. French. “Common risk factors in the returns on stocks and bonds.” Journal of Financial Economics. 33: 3–56. 1993.

⁵ Cliff Asness, Andrea Frazzini and Lasse H. Pedersen. “Quality Minus Junk.” Review of Accounting Studies. 2013.

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